T 


v-l 


THE  LIBRARY 

OF 

THE  UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 


SCHOOL  OF  LAW 


Digitized  by  tine  Internet  Arcliive 

in  2007  witli  funding  from 

IVIicrosoft  Corporation 


Iittp://www.arcliive.org/details/americancommerci01baysiala 


This  volume  contains  two  parts,  each  one  of  which 
is  arranged  as  a  separate  boolj,  complete  in  itself, 
with  independent  title  pages,  tables  of  contents,  and 
indices,  and  with  separate  paging. 

The  parts  so  treated  are  as  follows : 

1.  General    Survey    and    Contracts ;    and    im- 

mediately  following, 

2.  Agency. 

At  the  end  of  each  subject  see  Questions  and 
Problems. 


AMERICAN  COMMERCIAL   LAW  SERIES 
Second  Edition 

General  Law  of  Contracts 

WITH  PRELIMINARY  CHAPTERS  ON 

GENERAL  SURVEY 

AND 

QUESTIONS  AND  ANSWERS 


BY 

ALFRED  W.  BAYS,  B.  S.,  LL.  B. 

Professor  of  Law,  Northwestern  University  School  of 
Commerce,  and  Member  of  Chicago  Bar 


CHICAGO 

CALLAGHAN  AND  COMPANY 

1920 


COPTBIGHT,    1920 

py 
CALLAGHAN   &   COMPANY 


T 


DEDICATED 

TO 

A.  H.  B.,  a  K.  B.,  and  M.  B. 


6861.68 


PREFACE  TO  REVISED  EDITION. 


The  first  edition  of  these  books  was  prepared  and  pub- 
Hshed  in  191 1  and  1912,  largely  with  the  idea  of  meeting 
the  class  room  needs  of  the  author's  own  students.  They 
have,  however,  been  widely  sold  throughout  the  country 
and  used  in  a  lai^e  number  of  schools  and  colleges  with 
much  success. 

A  revision  is  now  offered  in  order  to  enable  the  author 
to  extend  somewhat  the  scope  of  the  work  as  well  as  to 
incorporate  some  new  ideas  and  bring  the  work  down  to 
date. 

Time  was  when  an  author  of  books  upon  business  law, 
adapted  for  use  in  lay  instruction,  felt  called  upon  to 
justify  his  endeavor.  The  law  was  a  holy  and  mysterious 
thing  not  meant  for  common  gaze.  Possibly  this  view 
was  based  upon  a  belief  that  "a  little  learning  was  a  dan- 
gerous thing."  The  obvious  answer  that  if  a  little  is 
dangerous,  safety  lies  in  getting  more,  was  overlooked. 
For  law  is  something  with  which  the  business  man  must 
deal.  There  is  no  escape.  He  cannot  leave  it  alone. 
Every  business  man  is  continually  dealing  with  legal 
facts.  He  is  held  by  legal  presumption  to  a  knowledge 
of  the  law.  How  absurd  to  say  that  he  must  make  con- 
tracts, but  must  not  have  explained  to  him  that  there  is 
such  a  thing  as  consideration,  or  a  statute  of  frauds,  or 
a  parol  evidence  rule ;  that  he  must  become  bound  upon 
negotiable  paper,  but  must  not  know  the  significance  of 
its  negotiable  quality.    If  it  is  felt  that  he  will  strive  to 

7 


8  Preface. 

be  "his  own  lawyer,"  the  fear  is  groundless.  In  a  certain 
sense  every  man  is  his  own  lawyer,  just  as  every  one  is 
his  own  physician.  But  in  so  far  as  that  expression 
means  that  the  reader  will  strive  to  dispense  with  the 
services  of  an  expert  where  an  expert  is  needed,  experi- 
ence shows  that  the  more  one  knows  of  law,  and  the 
more  generally  intelligent  he  is,  the  less  likely  he  is  to 
step  into  legal  pitfalls.  In  that  sense  only,  the  lawyer 
loses  business. 

Law  of  business  arises  out  of  business  practices  and 
business  needs ;  it  is,  or  should  be,  to  serve  business.  To 
serve  business  efficiently  a  business  man  should  know  of 
it  as  much  as  he  can;  not  in  order  to  practice  it,  for  he 
has  neither  the  skill  nor  the  time  for  that,  and  the  more 
he  studies  law,  the  more  he  realizes  that  fact. 

The  layman  who  studies  these  pages  will  realize  the 
vastness  of  the  field  of  law.  He  will  appreciate  that  it  is 
as  broad  as  human  endeavor ;  that  it  has  countless  appli- 
cations; that  it  is  ever  in  development.  He  will,  how- 
ever, learn  also,  that  some  principles  of  law  have  become 
fundamental,  that  some  rules  and  practices  of  law  have 
become  permanently  established  and  can  be  relied  upon 
not  to  change;  that  he  can  acquire  practical  knowledge 
that  will  help  him  in  immediate  ways  in  his  own  busi- 
ness ;  and  that  he  must,  not  alone  for  safety's  sake,  but 
to  have  workmanlike  assistance,  consult  the  expert  when 
occasion  demands. 

A  study  of  law  strengthens  the  reasoning  faculties, 
broadens  the  general  view,  and  has  an  important  part  in 
one's  liberal  education. 

A  few  forms  have  been  appended.  The  author  is, 
however,  not  a  great  believer  in  the  desirability  of  forms 
in  a  book  of  this  character.  Forms  of  deeds,  charters, 
etc.,  are  primarily  for  the  lawyer,  and  each  jurisdiction 


Preface,  9 

has  its  variations.    Hence,  there  has  been  no  attempt  to 
do  much  in  the  way  of  forms. 

Questions  and  problems  follow  each  text.  Authorities 
are  quoted  more  extensively  than  in  the  first  edition,  and 
are  to  enable  further  research  where  it  is  desired. 

Alfred  W.  Bays. 

Chicago,  September  i,  1920. 


TABLE  OF  CONTENTS, 


GENERAL  SURVEY. 

CHAPTER  I. 

LAW  DEFINED. 

Sec.  I.  What  is  law. 

Sec.  2.  International  law. 

Sec.  3.  National  or  municipal  law. 

Sec.  4.  Branches  of  municipal  law. 

CHAPTER  2. 

THE  BRANCHES   OF    MUNICIPAL  LAW. 


Sec. 

5- 

Constitutional  law. 

Sec. 

6. 

The  federal  constitution. 

Sec. 

7- 

The  state  constitutions. 

Sec. 

8. 

Administrative  law. 

Sec. 

9- 

The  law  of  crimes. 

Sec. 

10. 

The  law  of  torts. 

Sec. 

II. 

The  law  of  judicial  procedure. 

Sec. 

12. 

Other  branches  of  municipal  law. 
CHAPTER  3. 

FORM   OF  LAW. 

Sec. 

13- 

Purpose  of  this  chapter. 

Sec. 

14. 

Written  law. 

II 


12  Table  of  Contents. 

Sec.  15.  Codes. 

Sec.  16.  Uniform  laws. 

Sec.  17.  Unwritten  law. 

Sec.  18.  Judicial  reports. 

Sec.  19.  Doctrine  of  stare  decisis. 

Sec.  20.  Secondary  sources  of  the  law. 

CHAPTER  4. 

THE  JUDICIAL   SYSTEM. 

Sec.  21.  Function  of  the  courts. 

Sec.  22.  Courts  of  law  and  courts  of  equity. 

Sec.  23.  Courts  of  original  jurisdiction  and  of  review. 

Sec.  24.  The  progress  of  a  case  through  the  courts. 

CHAPTER  5. 

ADMINISTRATIVE    ROARDS    AND    COMMISSIONS. 

Sec.  25.  In  general. 

Sec.  26.  The  Interstate  Commerce  Commission. 

Sec.  27.  The  Federal  Reserve  Board. 

Sec.  28.  The  Federal  Trade  Commission. 

Sec.  29.  Public  utihty  commissions. 

Sec.  30.  Commissions  to  revise  or  regulate  taxes. 

Sec.  31.  Other  boards  or  commissions. 


Table  of  Contents.  13 

THE  GENERAL  LAW  OF  CONTRACT. 

PART  I. 
FORMATION  OF  CONTRACT. 

CHAPTER  I. 

DEFINITION    AND    CLASSIFICATION. 

Sec.     I.     Contract  defined. 

Sec.     2.     Essential  elements  in  contracts. 

Sec.     3.     Kinds  of  contracts. 

CHAPTER  2. 

PARTIES    TO    CONTRACTS. 

A.    Who  Are  Parties. 

Sec.     4.     Parties  defined. 

Sec.     5.     Capacity  of  parties  generally. 

B.    Minors. 

Sec.     6.     Who  are  minors. 
Sec.     7.     Power  of  minors  to  contract. 
Sec.     8.     Minor's  liability  for  necessaries. 
Sec.     9.     What  are  necessaries. 

(a)  Kind  of  advantages  that  may  constitute 

necessaries. 

(b)  Station  in  life  as  factor. 

(c)  Minor  already  supplied. 

(d)  Necessaries  must  be  actually  supplied. 
Sec.  10.     Disaffirmance  of  minor's  voidable  contracts. 

(a)  Right  to  disaffirm. 

(b)  Time  of  disaffirmance. 


14  Table  of  Contents. 

(c)  Conditions  of  disaffirmance. 

(d)  Disaffirmance  of  minor's  deeds  to  real 

estate. 

(e)  Ratification. 

Sec.  II.     Tortious  liability  of  minors  in  cases  involving 
contracts. 


C.    Other  Parties  Under  Disability. 

Sec. 

12. 

Married  women. 

Sec. 

13. 

Insane  persons. 

Sec. 

14. 

Drunken  persons. 

Sec. 

15. 

Aliens. 

Sec. 

16. 

Corporations. 

CHAPTER  3. 

OFFER  AND  ACCEPTANCE    (l)    WHAT   CONSTITUTES. 
A.    Necessity  of  Offer  and  Acceptance. 
Sec.  17.     No  contract  without  offer  and  acceptance. 

B.    What  Constitutes  Offer. 

Sec,  18.  No  offer  and  acceptance  because  no  communi- 
cation to  offeree. 

Sec.  19.     No  offer  because  offer  not  uttered. 

Sec.  20.  Preliminary  announcements  intended  to  secure 
offers  distinguished  from  offers. 

Sec.  21.     Offer  indefinite. 

Sec.  22.     Offer  incomplete. 

C.    How  Long  Offer  Continues. 

Sec.  23.     Duration  of  offer. 
Sec.  24.     Termination  of  offer  by  rejection. 
Sec.  25.     Termination  of  offer  by  destruction  of  subject 
matter. 


Table  of  Contents.  15 

Sec.  26.     Termination  by  death  and  insanity  of  offeror 

or  offeree. 
Sec.  27.     Revocation  of  offer. 
Sec.  28.     Contracts  to  keep  offers  open. 

D.    The  Acceptance. 

Sec.  29.     What  constitutes  acceptance. 
Sec.  30.     Acceptance  by  promise  or  act. 
Sec.  31.     Communication  of  acceptance. 

(a)  Communication  of  offer. 

(b)  Communication  to  agent. 

(c)  Communication  by  mail  or  telegraph. 

(d)  When  acceptance  by  mail  or  telegraph 

authorized. 

(e)  Acceptance  may  be  by  any  method  if  it 

reaches  offeror  in  time. 
Sec.  32.     Silence  as  acceptance. 

CHAPTER  4. 

OFFER  AND  ACCEPTANCE    (2)    VALIDITY   OF  ASSENT 
THEREIN. 

Sec.  33.     Introduction. 

A.    Extrinsic   Circumstances   Defeating   Contractual  Intent. 

Sec.  34.     Fraud  in  inception  or  execution. 
Sec.  35.     Mistake. 

(a)  Mutual  mistake  as  to  existence  of  sub- 

ject matter. 

(b)  Mutual  mistake  as  to  identity  of  sub- 

ject matter. 

(c)  Mutual  mistake  as  to  terms  employed. 


1 6  Table  of  Contents. 

B.    Circumstances  of  Undue  Advantage  Rendering  Contract 
Voidable. 

(a)  Fraud  in  the  inducement  or  consideration. 
Sec.  36.     Fraud  in  the  inducement  defined. 

Sec.  37.  Express  statements  of  fact  as  fraud. 

Sec.  38.  Opinions  and  predictions  not  fraud. 

Sec.  39.  Active  concealment  as  fraud. 

Sec.  40.  Silence  as  fraud. 

Sec.  41.  Silence  as  fraud — facts  not  discoverable. 

Sec.  42.  Silence  as  fraud — contract  one  uberrimae  fidei. 

Sec,  43.  Silence  as   fraud — relationships  of  trust  and 

confidence. 

Sec.  44.  Summary  of  what  constitutes  fraud. 

(b)  Duress. 

Sec.  45.     Duress  defined. 

(c)  Undue  influence. 

Sec.  46.     Undue  influence  defined — its  effect. 

(d)  Disaffirmance  and  ratification  of  contracts  void- 

able for  foregoing  reasons. 
Sec.  47.  Conditions  of  disaffirmance. 
Sec.  48.     Ratification. 

CHAPTER  5. 

CONSIDERATION. 

A.    Theory  and  Nature. 

Sec.  49.     Consideration  defined;  a  necessary  element. 
Sec.  50.     Inadequacy  of  consideration. 

B.    Examples  of  Consideration. 

Sec.  51.     Consideration  may  consist  in  promise  or  act. 
Sec.  52.     Past  act. 


Table  of  Contents.  17 

Sec.  53.  Performance  of  or  promise  to  perform  obliga- 
tion imposed  by  law. 

Sec.  54.     Promise  to  perform  unexecuted  contract. 

Sec.  55.  Part  payment  of  debt  as  consideration  of  re- 
lease of  balance. 

(a)  Part  payment  of  liquidated  debt — general 

rule. 

(b)  Any  disadvantage  to  debtor  in  addition 

to  part  payment  of  debt. 

(c)  Payment  other  than  by  money. 

(d)  Debt  unliquidated. 

(e)  Composition  with  creditors. 
Sec.  56.     Compromise  of  disputed  claim. 

Sec.  57.     Forbearance  of  suit  as  good  consideration. 
Sec.  58.     Consideration  in  subscriptions. 

CHAPTER  6. 

LEGALITY  OF  CONTRACTS. 
A.    Legality  of  Contract  an  Essential  Element. 
Sec.  59.     Illegal  agreements  void. 

B.    Particular  Classes  of  Illegal  Agreements. 

I.    CONTRACTS  WHOSE  OBJECTS  ARE  IN  VIOLATION  OF  LAW. 

Sec.  60.     Contracts  in  restraint  of  trade. 

(a)  Contracts   in    restraint   of   trade,    when 

reasonable,  are  valid. 

(b)  Contracts    in   unreasonable   restraint   of 

trade  are  invalid. 

(c)  Contracts  in  general  restraint  of  trade, 

when  reasonable,  are  upheld  by  some, 
and  denied,  by  courts. 

(d)  Contracts  in   restraint  of  trade  unlim- 

ited in  time. 
Bays-— 2 


l8  Table  of  Contents. 

(e)  Must  be  ancillary  to  contract  protecting 

good  will. 

(f)  Invalidity  does  not  impair  rest  of  con- 

tract. 
Sec.  6i.     Contracts  of  monopolistic  tendency. 
Sec.  62.     Contracts  limiting  liability. 

(a)  Common  carriers  and  other  public  serv- 

ice corporations. 

(b)  Employers  and  employees. 

(c)  Other  cases. 
Sec.  63.     Usurious  contracts. 
Sec.  64.    Wager  contracts. 

Sec.  65.     Contracts  tending  to  corrupt  the  public  service. 
Sec.  66.     Agreements  in  restraint  of  marriage. 

2.    CONTRACTS    ILLEGAL    BECAUSE    OF    MANNER    OF 
FORMATION. 

Sec.  67.     Sunday  agreements. 

Sec.  68.     Contracts  without  required  license. 

C.    Intent  to  Put  to  Illegal  Use  Avails  of  Legal  Contract. 

Sec.  69.     Knowledge  by  one  of  other's  intent  to  commit 
crime. 

D.    Judicial  Remedies  in  Illegal  Agreements. 

Sec.  70.  No  remedy  by  way  of  enforcement. 

Sec.  71.  No  remedy  by  way  of  rescission. 

Sec.  ^2.  Parties  not  in  equal  guilt. 

Sec.  73.  Defendant's  contract  wholly  executory. 

Sec.  74.  Where  statute  allows  recovery. 

Sec.  75.  Where  contract  partly  legal,  partly  illegal. 

CHAPTER  7. 

FORM  AND  EVIDENCE. 

Sec.  76.    General  statement. 


Table  of  Contents.  19 

A.    The  Formal  Contract  or  Contract  Under  SeaL 

Sec.  ']'].    Definition  of  sealed  instrament. 
Sec.  78.     Effect  of  seal  in  early  law. 
Sec.  79.     Instruments  requiring  seal  at  common  law. 
Sec.  80.     Modern  legislation  in  respect  to  sealed  instru- 
ments. 

B.  Contracts  Required  by  Law  to  Be  in  Writing. 

Sec.  81.     Certain  kinds  of  contracts  to  be  in  writing. 

C.  Contracts  Not  Enforcible  Unless  in  Writing. 

(a)  Nature  and  object  of  statute  of  frauds. 
Sec.  82.     The  statute  of  frauds. 

Sec.  83.     Text  of  the  statute. 

Sec.  84.     Statute  relates  to  enforcement,  not  validity  of 
contracts. 

(b)  The  cases  within  the  statute. 

Sec.  85.     Promises  of  executors  and  administrators. 
Sec.  86.     Promises  to  answer  for  the  debt,  default  or 

miscarriage  of  another  person. 
Sec.  87.     Promises  in  consideration  of  marriage. 
Sec.  88.     Contracts    for  the   sale   of   lands   or  interest 

therein. 
Sec.  89.    Contracts  that  cannot  be  performed  within  a 

year. 
Sec.  90.    Contracts  for  the  sale  of  goods,  wares  and 

merchandise. 

(c)  What  amounts  to  compliance  with  statute. 
Sec.  91.     The  memorandum  and  the  signature. 

Sec.  92.     Compliance  by  delivery  and  acceptance  in  sales. 
Sec.  93.     Compliance  by  payment  or  part  payment  in 
sales. 


20  Table  of  Contents. 

Sec.  94.     Contracts  of  "work  and  labor"  not  within  the 

statute. 
Sec.  95.     The  statute  of  frauds  and  the  uniform  sales 

act. 

D.    The  Parol  Evidence  Rule. 

Sec.  96.     The  parol  evidence  rule  defined. 

Stc.  97.     Parol  evidence  rule  permits  contract  partly  in 

writing,  partly  oral. 
Sec.  98.     Parol  evidence  rule  permits  proof  of  customs. 
Sec.  99.     Evidence  not  forbidden  by  parol  evidence  rule. 

E.    Oral  and  Implied  Contracts. 

Sec.  100.     Oral  contracts. 

Sec.  loi.     Contracts  implied  in  fact. 

F.    Contracts  Implied  in  Law  (Quasi  Contracts). 
Sec.  102.     Definition  of  quasi  contract. 


PART  II. 
THE  INTERPRETATION  OF  CONTRACTS. 

CHAPTER  8. 

GENERAL  RULES  OF  INTERPRETATION. 

Sec.  103.     The  governing  principle   in  construction   of 

contracts. 
Sec.  104.     General  rules  of  construction. 

CHAPTER  9. 

CONSTRUCTION  IN   RESPECT  TO   TIME  OF  PERFORMANCE. 

Sec.  105.     In  a  court  of  law  time  is  of  the  essence. 
Sec.  106.     Time  of  performance  in  a  court  of  equity. 


Table  of  Contents.  21 

CHAPTER  10. 

INTERPRETATION     OF    PROVISIONS    AS    TO    PENALTIES    AND 
LIQUIDATED    DAMAGES. 

Sec.  107.     In  explanation. 

Sec.  108.  Damages  difficult  to  ascertain  and  amount 
reasonable. 

Sec.  109.  Larger  sum  than  debt  payable  in  event  of  de- 
fault. 

Sec.  no.  Certain  sum  payable  for  breach  of  any  of 
several  covenants. 

Sec.  III.     Forfeiture  of   amounts  paid. 


PART  III. 
OPERATION  OF  CONTRACTS. 

CHAPTER  II. 

OPERATON  AS  TO  PARTIES. 

Sec.  112.     General  rule. 

CHAPTER  12. 

BENEFICIARIES   TO    CONTRACTS. 

Sec.  113.     General  statement. 

Sec.  114.     Incidental  beneficiary  cannot  sue. 

Sec.  115.     Beneficiary  may  sue  when. 

CHAPTER  13. 

ASSIGNMENT  OF   CONTRACTS. 

Sec.  116.     General  statement. 

Sec.  117.     Power  to  assign  mere  contractual  rights. 


22  Table  of  Contents.  ; 

Sec.  ii8.  Power  to  assign  contractual  obligations. 
Sec.  119.  Power  to  assign  contractual  rights  accom- 
panied with  personal  confidence  or  liability,  j 
Sec.  120.  Contractual  rights  to  be  acquired  in  future  j 
not  assignable.  ] 
Sec.  121.  Effect  of  assignment  as  to  assignor.  j 
Sec.  122.  Assignee  as  successor  to  title  of  assignor,  1 
Sec.  123.  Effect  of  assignment  as  to  other  party.  { 
Sec.  124.  What  constitutes  assignment.  | 
Sec.  125.     Assignment  by  operation  of  law.  I 

CHAPTER  14.  i 

INTERFERENCE     WITH     CONTRACTUAL     RELATIONSHIPS     BY  ; 

THIRD  PERSONS.  | 

Sec.  126.     Duty  not  to  interfere  with  contract  rights. 

Sec.  127.     Contract  for  indefinite  period.  ] 

Sec.  128.     Prevention  of  future  contracts. 


PART  IV. 
DISCHARGE  OF  CONTRACTS. 

CHAPTER  15. 

DISCHARGE  BY  PERFORMANCE,  TENDER  AND  BREACH. 

Sec.  129.     Meaning  of  phrase  discharge  of  contracts. 

Sec.  130.  Of  the  performance  which  will  discharge 
contracts. 

Sec.  131.     Contracts  to  be  performed  to  satisfaction. 

Sec.  132.  Of  performance  which  will  not  discharge  and 
breach. 

Sec.  133.  Effect  of  acceptance  of  insufficient  perform- 
ance. 


Table  of  Contents. 


23 


Sec.  134.     Performance  or  tender  as  condition  prece- 
dent. 
Sec  135.    Breach  of  one  part  of  several  contract. 
Sec.  136.    To  what  contract  performance  relates. 
Sec.  137.     Anticipatory  breach. 

CHAPTER  16. 

DISCHARGE  OF  CONTRACTS  BY  OTHER  MEANS  THAN 
PERFORMANCE   OF   BREACH. 


Sec.  138, 

Sec.  139, 

Sec.  140, 

Sec.  141 

Sec.  142 

Sec.  143 

Sec.  144, 


Sec.  145- 
Sec.  146. 
Sec.  147. 


Sec.  148. 

Sec.  149. 

Sec.  150. 

Sec.  151. 


Sec.  152. 


Discharge  by  impossibility  of  performance. 

Discharge  by  alteration  of  written  instrument. 

Discharge  by  novation. 

Discharge  by  merger. 

Discharge  by  agreement. 

Discharge  in  bankruptcy. 

Discharge  by  statute  of  limitations. 

CHAPTER  17. 

REMEDIES   OF   THE   PARTIES. 
A.    Actions  for  Damages. 

In  general. 

Kinds  of  damages  in  contract  cases. 

Rule  for  computing  damages  in  contract  cases. 

B.    Bill  for  Specific  Performance. 

General  rule. 

Contracts  for  sale  of  real  estate. 
Contracts  for  sale  of  personal  property. 
Contracts  for  personal  services. 

C.    Bill  for  Injunction. 
When  court  will  enjoin  breach  of  contract. 


GENERAL  SURVEY. 


GENERAL  SURVEY. 

CHAPTER  I. 
LAW  DEFINED. 
Sec.  1.    WHAT  IS  LAW. 

To  obtain  an  accurate  estimate  of  the  idea  contained  in 
the  word  law  (i.  e.,  political  law)  it  must  first  be  divided 
into  that  law  which  governs  sovereign  nations  in  their 
relationships  with  each  other  and  that  law  by  which 
each  sovereignty  governs  individuals  within  its  terri- 
tory. Between  the  two  is  a  basic  distinction — so  basic 
in  fact  that  some  writers  have  hesitated  to  call  the  first 
division  law  at  all,  although  it  is  generally  accepted  as 
properly  so  described.  This  distinction  is  in  the  fact  that 
sovereign  bodies  have  as  to  each  other  by  their  very  nature 
no  legislative,  judicial  or  executive  superior  to  declare, 
interpret  or  enforce  rules  to  govern  them,  but  each  of 
them  has  as  to  its  own  constituent  inhabitants  superiority 
of  power  by  which  it  can  prescribe  and  enforce  its  rules 
enacted  to  preserve  its  integrity  and  maintain  its  peace. 

If  each  of  these  divisions  is  properly  called  political 
law  what  is  the  common  element  or  characteristic?  It 
consists  in  this — that  both  branches  are  composed  of  rules 
of  political  action  emanating  from  sovereignty.  Even 
in  the  case  of  international  law,  such  rules  as  have  the 
moral  sanction  of  common  international  opinion  merit 
the  mandatory  word  "law." 

Let  us  note  more  particularly  each  division  and  first, 
international  law. 

27 


28  The  Law  of  Contracts. 

Sec.  2.  INTERNATIONAL  LAW.  International  law 
may  be  defined  as  the  body  of  rules  and  customs  which  have 
become  recognized  by  the  sovereignties  of  the  world  to  de- 
termine their  mutual  rights  and  to  govern  their  intercourse 
with  each  other. 

We  have  noticed  that  sovereignties,  being  bodies  with- 
out political  superior,  cannot,  therefore,  be  legislated 
upon.  They  may  be  parties  to  compacts,  but  by  the  very 
nature  of  things  there  is  no  superior  authentic  tribunal 
out  of  which  law  may  come  to  govern  them.  Yet  sover- 
eignties must  trade  together,  they  must  use  the  common 
highways  of  the  world,  they  war  upon  each  other.  In 
the  process  of  time  common  customs  become  established, 
treaties  are  entered  into,  recognition  of  principles  deter- 
mined. The  sum  total  is  international  law.  And  because 
it  has  behind  it  the  recognition  of  the  consenting  nations, 
it  has  a  moral  force  to  sanction  it,  and  has  the  true  char- 
acter of  law. 

"The  agreement  or  consent  which  is  essential  to  the 
validity  of  a  rule  of  international  law  is  said  to  be  express 
or  positive  when  it  is  embodied  in  treaties  or  formal  dec- 
larations of  public  policy,  or  in  statutes  which  are  enacted 
in  support  or  recognition  of  the  accepted  usages  of  na- 
tions ;  it  is  said  to  be  tacit  when  it  takes  the  form  or  con- 
formity to  the  approved  practices  of  the  state  in  their 
international  relaions."  ^ 

Sec.  3.    NATIONAL  OR  MUNICIPAL  LAW. 

Municipal  law  is  political  law  in  its  fullest  sense.  It 
is  the  law  imposed  by  the  sovereignty  (or  its  dependencies 
or  subdivisions)  upon  its  subjects.  It  is  prescribed  by  a 
superior  and  must  be  obeyed. 

I.  Davis,  The  Elements  of  International  Law,  p.  2. 


American  Commercial  Law.  29 

Sec.  4.    BRANCHES  OF  MUNICIPAL  LAW. 

The  objects  sought  to  be  attained  by  municipal  law  by 
which  we  may  divide  it  into  branches  for  the  purpose  of 
comprehending  its  character,  are  as  follows : 

A.  Public  Law:  or  that  Law  with  Whose  Objects  the  State 

at  Large  Is  Primarily  Concerned. 

1.  Constitutional  law ; 

2.  Administrative  law; 

3.  Criminal  law  and  procedure. 

B.  Private  Law:  or  the  Law  Provided  for  the  Benefit  of 

the  Individual  with  Whose  Enforcement  the  State 
Is  Not  Concerned  Except  for  the  Individual's  Benefit 
and  at  His  Instance. 

1.  The  law   of  the  obligation  of   individual   to  in- 

dividual. 

a.  The  law  of  contract ; 

b.  The  law  of  quasi  contract; 

c.  The  law  of  torts. 

2.  The  law  of  property. 

a.  The  law  of  tenure; 

b.  The  law  of  transfer  inter  vivos; 

c.  The  law  of  descent  and  wills. 

3.  The  law  of  status. 

4.  The  law  of  delegation  of  authority. 

5.  The  law  of  business  associations. 

a.  The  law  of  partnerships; 

b.  The  law  of  corporations. 

6.  The  law  of  judicial  procedure  in  civil  cases. 

a.  The  law  of  pleading; 

b.  The  law  of  evidence ; 

c.  The  law  of  judicial  procedure  generally. 


30  The  Law  of  Contracts. 

The  above  division  is  not  scientifically  accurate  or  com- 
plete. It  cannot  be.  Grouping  may  be  made  from  other 
standpoints.  There  might  readily  be  a  difference  of  opin- 
ion as  to  some  of  the  divisions  and  subdivisions.  One 
division  cannot  be  made  exclusive  of  the  others,  for  all  of 
the  branches  of  the  law  interlace  with  and  cross  each 
other.  Further  divisions  might  be  added.  But  the  above 
division  is  fairly  in  accord  with  accepted  terminology  and 
subdivision. 

In  the  following  chapter  we  will  discuss  the  various 
branches  of  the  law. 


CHAPTER  2. 
THE  BRANCHES  OF  MUNICIPAL  LAW. 

Sec.  5.  CONSTITUTIONAL  LAW.  The  law  by  which  a 
government  is  organized  and  by  which  basic  principles  of  its 
existence  are  formulated  and  enforced  is  known  as  constitu* 
tional  law. 

The  constitutional  law  of  any  country  may  be  in  a 
highly  advanced  or  a  very  crude  condition.  It  may  consist 
in  a  document  drawn  up  to  embrace  all  of  the  constitu- 
tional law  (as  in  our  Federal  constitution),  or  it  may 
consist  merely  in  detached  charters  or  in  practices  and 
principles  recognized  as  fundamental  in  the  life  of  the 
nation.  In  the  former  case  we  say  that  the  constitution 
is  written ;  in  the  latter  unwritten, 

*Tn  a  much  qualified  and  very  imperfect  sense  every 
state  may  be  said  to  possess  a  constitution,  that  is  to  say, 
some  leading  principle  has  prevailed  in  the  administration 
of  its  government  until  it  has  become  an  understood  part 
of  its  system,  to  which  obedience  is  expected  and  habit- 
ually yielded ;  like  the  hereditary  principle  in  most  mon- 
archies, and  the  custom  of  choosing  the  chieftain  by  the 
body  of  the  people  which  prevails  among  some  savage 
tribes.  But  the  term  constitutional  government  is  applied 
only  to  those  whose  fundamental  rules  or  maxims  not  only 
locate  the  sovereign  power  in  individuals  or  bodies  desig- 
nated or  chosen  in  some  prescribed  manner,  but  also 
define  the  limits  of  its  exercise  so  as  to  protect  individual 
rights  and  shield  them  against  the  assumption  of  arbitrary 
power.    The  number  of  these  is  not  great,  and  the  pro- 

31 


32  The  Law  of  Contracts. 

tection  they  afford  to  individual  rights  is  far  from  being 
uniform."  2 

It  will  be  noticed  that  there  are  properly  two  ideas  em- 
braced in  the  words  "constitutional  law" — the  idea  of 
organizing  the  government  upon  a  working  basis  by  es- 
tablishing its  departments  and  offices,  and  the  idea  of 
limiting  the  power  of  those  who  legislate  and  rule  by  es- 
tablishing certain  principles  for  the  protection  of  the 
individual  which  may  not  be  departed  from.  Thus  in  our 
Federal  Constitution  we  have  these  two  ideas  highly  ex- 
emplified— the  organization  of  our  government  and  the 
limitation  of  its  power  over  individual  rights.  Where 
the  rights  of  the  individual  are  assured  in  this  manner, 
the  government  is  a  truly  "constitutional  government." 

A  law  is  said  to  be  "unconstitutional"  when  it  is  op- 
posed to  the  constitutional  law.  The  effect  of  an  attempt 
to  enact  such  a  law  varies  according  to  whether  the  con- 
stitution itself  declares  all  such  laws  void,  or  whether  the 
legislating  body  is  permitted  to  keep  unrestricted  power 
to  legislate  as  it  will.  In  the  former,  as  in  the  United 
States,  the  law  is  void,  is  in  fact,  no  law  at  all, 
and  the  word  "unconstitutional  law"  is  a  self-contradic- 
tion, although  custom  has  sanctioned  its  usage.  In  the 
latter,  as  in  England,  the  phrase  "unconstitutional  law"  is 
used  to  indicate  merely  that  the  law  so  enacted  is  contrary 
to  the  fundamental  principles  of  the  government  as  com- 
monly understood,  and  therefore  should  by  subsequent 
legislation  be  repealed. 

Let  us  now  notice  more  particularly  our  Federal  and  the 
state  constitutions. 

Sec.  6.  THE  FEDERAL  CONSTITUTION.  The  Fed- 
eral constitution  is  a  grant  of  power  by  the  states  to  the 

2.  Cooley,  Constitutional  Limitations,  7th  Ed.,  p.  4. 


American  Commercial  Law.  33 

Federal  Government  by  which  sovereignty  is  bestowed  and 
prescribed  powers  conferred. 

The  original  colonies,  after  experimenting  unsuccess- 
fully without  centralized  power  in  the  "league  of  friend- 
ship" known  as  the  Articles  of  Confederation,^  were 
driven  by  the  logic  of  events  to  the  adoption  of  the  present 
Federal  Constitution.  The  United  States  Constitution 
was  adopted  in  convention  on  September  17,  1787,  to  go 
into  effect  by  the  ratification  of  nine  states.  It  was  ratified 
by  the  necessary  number  on  June  21,  1788,  and  went  into 
effect  March  4,  1789. 

The  first  ten  amendments  were  ratified  by  the  various 
dates  from  November  20,  1789,  to  December  15,  1791, 
and  are  restrictions  on  Congress  in  the  nature  of  a  Fed- 
eral bill  of  rights. 

The  nth  amendment  was  declared  ratified  January  8, 
1798,  and  relates  to  the  judicial  power. 

The  1 2th  amendment  was  proclaimed  as  ratified  Sep- 
tember 25,  1804,  and  relates  to  the  mode  of  election  of 
the  President  and  the  Vice  President. 

The  13th  amendment  resulted  from  the  civil  war  and 
abolishes  slavery  and  was  declared  ratified  December  18, 
1865. 

The  14th  amendment  was  declared  ratified  July  21, 
1868.    It  relates  to  citizenship. 

The  15th  amendment  was  declared  ratified  March  30, 
1870. 

The  i6th  amendment  was  effective  February  23,  1913, 
and  gives  Congress  the  power  to  tax  incomes. 

The  17th  amendment  was  effective  May  31,  1913,  and 
provides  for  the  election  of  senators  by  direct  vote. 

The  i8th  amendment  was  in  force  January  17,  1920, 

3.  Adopted  July  9,  1778. 
Bays — 3 


34  The  Law  of  Contracts. 

and  establishes  national  prohibition  of  the  making  or  sale 
of  intoxicating  liquors. 

The  19th  amendment  was  proclaimed  adopted  in 
August,  1920,  and  establishes  woman  suffrage. 

The  federal  constitution  is  in  its  nature  a  grant  of 
power.  Each  state,  being  in  effect  sovereign,  granted  to 
the  federal  government  the  powers  therein  stipulated,  all 
power  not  therein  granted  being  retained.  Accordingly 
we  speak  of  the  federal  government  as  a  grant  of  power, 
and  from  this  fact  arises  the  governing  principle  of  con- 
struction that  the  federal  congress  has  no  power  of  legis- 
lation except  such  as  has  been  granted  in  the  federal 
constitution,  either  expressly  or  by  reasonable  implica- 
tion. 

The  federal  constitution  ( i )  sets  forth  the  form  of  the 
federal  government,  (2)  stipulates  the  powers  of  con- 
gress, (3)  contains  a  bill  of  rights. 

The  federal  government  has  a  threefold  division 
created  by  the  constitution — the  executive,  the  legislative 
and  the  judicial.  These  departments  are  co-ordinate  in 
rank.  The  question  early  arose  whether  the  judiciary  had 
the  power  to  declare  unconstitutional  a  law  enacted  by 
congress.  But  Chief  Justice  Marshall  in  a  strong  opinion,'' 
basing  his  reasoning  upon  the  provision  of  the  constitu- 
tion that  it  shall  be  the  supreme  law  of  the  land,  decided 
that  it  is  within  the  power  and  that  it  is  the  duty  of  the 
court  to  declare  an  enactment  null  and  void  if  it  shall  be 
found  against  the  constitution  or  without  the  power  of 
congress  to  enact.  This  right  is  now  taken  as  a  matter 
of  course. 

What  are  the  powers  delegated  to  the  federal  govern- 
ment? 

First,  sovereignty  has  been  granted.     As  far  as  other 

4.  Marbury  v.  Madison,  i  Cranch.  (U.  S.)   137. 


American  Commercial  Law.  35 

sovereignties  are  concerned,  the  federal  government  is 
the  repository  of  all  power  and  the  states  are  unknown 
except  as  divisions  of  the  United  States. 

Second,  we  may  say  that  the  states  have  retained  the 
general  power  to  deal  with  questions  of  local  commerce, 
with  questions  of  individual  rights  and  status,  with  ques- 
tions of  property. 

Third,  to  the  federal  government  has  been  given  juris- 
diction on  matters  deemed  to  be  of  more  than  local  im- 
portance, particularly  interstate  commerce,  coinage  of 
money,  patents,  post  office,  bankruptcies,  and  taxation  for 
federal  revenues.  The  enumeration  of  the  particular 
powers  of  the  constitution  is  in  Section  Eight  of  the  con- 
stitution. 

Another  question  which  agitated  men's  minds  in  our 
early  history  was  whether  the  constitution  should  have  a 
strict  or  a  liberal  construction,  and  Chief  Justice  Marshall 
in  McCuUoch  v.  Maryland  ^  resolved  this  doubt  in  favor 
of  a  liberal  construction  which  may  be  formulated  in 
words  to  this  effect,  that  congress  has  not  only  power  to 
'  enact  such  laws  as  are  specifically  provided  for  in  the  con- 
stitution, but  all  laws  that  are  necessary  or  reasonable  for 
carrying  into  effect  the  express  constitutional  powers. 

The  manner  of  the  amendment  of  the  constitutjon  is 
provided  therein. 

Sec.  7.  THE  STATE  CONSTITUTIONS.  The  state  con- 
stitutions are  those  by  which  the  people  of  the  state  con- 
stitute their  local  form  of  government  and  limit  the  powers 
of  their  own  representatives. 

We  have  seen  that  the  states  reserved  all  power  not 
granted  away  by  the  federal  constitution.     They  adopt 

5.  4  Wheat.  (U.  S.)  316. 


36  The  Law  of  Contracts.  ■ 

their  own  written  constitutions  for  two  purposes:  (i)  J 
to  prescribe  the  form  of  the  state  government,  and  (2)  ' 
to  Hmit  and  determine  the  power  of  their  representatives.  ' 
A  state  constitution  is  a  Hmitation  of  power.  The  federal  j 
constitution  is  a  grant  of  power.  If  the  power  of  con-  , 
gress  to  pass  a  law  is  in  question,  we  must  inquire  ! 
whether  the  federal  constitution  or  its  amendments  con-  ' 
fer  that  power  by  express  grant  or  reasonable  implication ; ; 
if  the  power  of  the  state  assembly  to  pass  a  law  is  in  ques-  ' 
tion  (assuming  it  not  to  be  a  power  taken  from  the  state  , 
by  the  federal  constitution)  we  inquire  if  the  state  consti- 
tution has  limited  the  power.  If  it  hasn't  then  the  state  ; 
assembly  has  the  power. 

A  state  constitution  may  be  amended  at  the  pleasure  of  : 
the  state.  j 

Sec.  8.  ADMINISTRATIVE  LAW.  The  administrative  j 
law  is  that  branch  of  the  law  wherein  is  included  all  laws  by  j 
which  the  government  functions  jmd  administers  its  affairs,  ] 
as  the  laws  by  which  territorial  divisions  are  made,  revenue  j 
law,  etc.  I 

^    I 

We  may  gather  into  one  large  body  laws  of  a  public  | 
nature  by  which  the  government  administers  its  affairs, : 
and  call  the  group  administrative  law.  Laws  creating  | 
territorial  divisions,  revenue  laws,  the  laws  creating  and! 
governing  highways,  public  improvements,  etc.,  are  all  j 
placed  in  this  large  and  important  branch  of  law.  J 

Sec.  9.  THE  LAW  OF  CRIMES.  A  crime  may  be  defined  \ 
as  any  act  or  omission  to  act,  declared  by  public  law  to  be' 
punishable  by  the  state  in  a  proceeding  in  its  own  name. 

•      \ 

The   state   must   preserve   its   own  integrity  as   well; 

against  inward   demoralization  as   outward   attack.     Iti 

■j 


American  Commercial  Law.  37 

exists  by  virtue  of  the  obedience  of  its  citizens  or  other 
subjects  to  the  laws  by  which  it  is  held  together  as  a 
political  body.  It  prevents  this  inward  demoralization 
(so  far  as  overt  act  is  concerned)  by  its  criminal  law,  or 
those  laws  whose  infraction  by  a  subject  will  be  deemed 
an  injury  to  the  state  itself. 

Theoretically  every  disregard  by  one  individual  of  the 
rights  of  others,  every  invasion  by  one  subject  of  the 
sphere  allotted  by  general  law  to  another,  is  an  attack 
upon  the  communal  system,  the  tendency  of  which,  how- 
ever slight,  is  toward  the  demoralization  of  the  scheme 
of  mutual  protection  for  which  the  state  exists.  But  in 
practice  it  cannot  always  be  so  regarded  on  account  of  its 
remote  tendency  to  affect  the  state  in  its  public  capacity. 
And  although  reparation  may  be  sought  by  the  individual 
injured  by  way  of  damages  or  other  fonn  of  restoration 
in  the  courts  furnished  by  the  state,  the  state  itself  takes 
no  notice  of  the  act  other  than  by  thus  furnishing  the 
means  of  redress,  deeming  that  sufficient  remedy,  unless 
the  act  is  also  of  such  a  nature  that  it  has  as  a  practical 
tendency  a  demoralizing  effect  upon  public  peace  and 
order.  To  effectuate  its  declaration 'that  the  infraction 
will  be  considered  injurious  to  the  state  in  its  public  capac- 
ity, it  affixes  a  punishment,  ordinarily  by  way  of  a  mone- 
tary charge  called  a  "fine"  or  by  imprisonment  or  both. 

A  crime,  then,  may  be  defined  as  any  act  or  omission 
to  act,  declared  by  public  law  to  be  punishable  by  the  state 
in  a  proceeding  in  its  own  name. 

The  act  thus  constituting  a  crime  may  or  may  not  be  an 
act  injuring  an  individual.  The  test  is  whether  according 
to  the  public  policy  of  the  state  it  is  an  act  injurious  to  the 
state  itself.  If  it  also  injures  an  individual  he  has  also  his 
redress.  Thus,  having  in  one's  possession  appliances  for 
counterfeiting  money  may  be  a  crime,  but  no  individual 


38  The  Law  of  Contracts.  \ 

is  so  far  by  that  act  injured.    So,  killing  another  unjusti-  j 
fiably  and  inexcusably  is  a  crime,  and  here  we  have  both 
the  public  and  private  wrong.    But,  as  we  shall  see,  there  | 
cannot  be  a  private  wrong  unless  private  injury  is  present. 

Crimes  are  usually  divided  into  three  classes  according 
to  the  enormity  of  their  turpitude  ;  treasons,  felonies  and , 
misdemeanors.  Treason  is  declared  by  our  federal  con- : 
stitution,  to  "consist  only  in  levying  war  against  them] 
(The  United  States)  or  in  adhering  to  their  enemies  giv-| 
ing  them  aid  and  comfort"  (Article  III,  Sec.  3).  A^ 
felony  at  common  law  was  a  crime  which  worked  a  for-' 
feiture  of  the  offender's  lands  or  goods.  In  this  country; 
there  is  no  such  thing  as  forfeiture  of  property  as  aj 
punishment  for  crime,  and  felonies  are  those  crimes  pun- 1 
ishable  by  death  or  imprisonment  in  a  state  prison.  Mis-l 
demeanors  are  all  crimes  below  the  grade  of  felony.  Thej 
distinction  is  sometimes  important  because  of  the  fact' 
that  certain  civil  disabilities  (as  the  right  to  vote,  or  tO; 
hold  public  office)  are  attached  in  some  states  to  convic-; 
tion  of  felony.  j 

There  are  some  acts  which  are  adjudged  a  public  evil: 
by  the  sense  of  all  civilized  communities.  These  are  thei 
acts  (usually)  which  the  common  law  declared  criminal.  1 
They  are  said  to  be  acts  "mala  in  se."  But  an  act  may] 
be  evil  only  because  legislation  declares  it  so.  Such  actsj 
are  called  "mala  prohibita."  Thus  it  may  be  a  crime  in! 
one  jurisdiction  to  drive  an  automobile  in  a  public  street 
at  a  speed  greater  than  twelve  miles  an  hour,  while  in 
another  jurisdiction  such  act  may  not  be  declared  un-: 
lawful.  I 

Sec.  10.  THE  LAW  OF  TORTS.  The  law  of  torts  is  thei 
law  which  determines  the  obligations  of  each  person  toward! 


American  Commercial  Law.  39 

his  neighbor  as  imposed  by  the  general  law  of  the  land  and 
by  the  breach  of  which  the  neighbor  sustains  damage. 

In  the  arrangement  of  the  social  order  each  individual 
must  be  assigned  his  own  sphere,  limited  by  the  very 
hypothesis  by  the  spheres  of  the  other  members  of  the 
community.  To  pass  out  of  this  sphere  into  the  sphere 
of  another  is  a  trespass  that  may,  as  we  have  seen,  be  so 
serious  in  its  disintegrating  tendencies  as  to  constitute  an 
offense  against  the  collective  whole,  but  whether  that  be 
so,  it  is  in  derogation  of  the  rights  vouchsafed  by  the 
general  law  to  that  other.  As  such  transgressor  takes  so 
must  he  be  made  to  return  as  far  as  may  be,  an  equiva- 
lent. The  law  defining  the  sphere  is  known  as  the  law  of 
torts. 

The  word  tort  signifies  "wrong."  The  correlative 
right  has  no  one  accepted  word  to  describe  it. 

Whether  an  act  is  a  tort  depends  obviously  upon  the 
question  whether  the  actor  is  regarded  by  the  general 
law  as  under  a  legal  obligation  not  to  do  that  particular 
act,  or,  in  other  words,  whether  the  doing  of  that  act  is 
regarded  as  a  legal  harm.  By  way  of  illustration,  the 
general  law  might  or  might  not  regard  it  as  a  legal  harm 
for  me  to  refuse  without  cause,  to  recommend  to  another 
the  services  of  my  former  employee.  The  law  might  or 
might  not  regard  it  as  a  legal  harm  for  me  to  cause  mental 
fright  (without  physical  injury)  to  another.  We  must 
determine  first  what  sort  of  acts  are  regarded  by  law  as 
legal  harms.  And  in  establishing  whether  or  not  an  act 
is  a  legal  harm,  the  law  in  its  development  looks  to  vari- 
ous circumstances ;  whether  the  alleged  harm  is  of  a 
nature  that  its  existence  can  in  any  creditable  way  be 
tested ;  whether  the  freedom  of  individual  action  is  not 
thereby  too  much  confined ;  whether  a  recognition  of  the 


40  The  Law  of  Contracts. 

act  as  a  harm  would  not  lead  to  difficulty  in  the  enforce- 
ment of  the  remedy.  We  find  that  the  most  common 
classes  of  wrongs  now  settled  as  such  in  our  law  are  as 
follows :  physical  interference  by  one  with  the  possession 
by  another  of  real  property  or  personal  property  (tres- 
pass quare  clausum  fregit  and  trespass  de  bonis  asporta- 
tis);  physical  assault  by  one  upon  the  person  of  another 
(trespass  ad  personam  or  assault  and  battery)  ;  disturbing 
one's  enjoyment  of  his  property  by  maintaining  noxious 
smells,  noises  and  the  like,  adjacent  to  the  property  (nui- 
sance) ;  defaming  one's  reputation  (slander  and  libel)  ; 
failing  to  observe  due  care  for  the  safety  of  another's  per- 
son or  property  (negligence)  ;  deceiving  or  defrauding 
one  and  thereby  causing  him  loss  (deceit  and  fraud) ; 
conspiring  with  others  to  injure  one  (conspiracy) ;  and 
others. 

Having  decided  that  the  act  complained  of  is  a  wrong 
act  within  the  meaning  of  the  law,  we  next  determine  the 
responsibility  for  the  act,  that  is,  we  discover  the  connec- 
tion between  the  wrong  and  the  wrong  doer. 

The  actor  may  have  a  justification  or  excuse  for  his  act. 
Admitting  that  the  act  is  one  which  constitutes  an  invasion 
of  the  civil  sphere  of  another,  and  that  he  is  the  cause 
thereof,  yet  he  may  claim  special  circumstances  that  either 
justify  him  or  excuse  him.  Plaintiff  may  have  been  him- 
self the  aggressor,  or  may  have  consented,  or  may  have 
contributed  by  his  own  fault  to  the  harm  done,  or  may 
have  been  a  law  breaker.  These  are  all  excuses  based  on 
the  plaintiff's  conduct.  Other  things  may  justify.  The 
needs  of  public  justice  (as  where  a  judge  on  the  bench 
utters  calumny  in  the  course  of  a  trial)  or  of  public 
safety  (as  where  a  fireman  pulls  down  a  building  to  stop 
the  progress  of  a  fire)  and  other  needs  resting  on  the 


American  Commercial  Law.  41 

good  of  society  as  a  whole,  may  fully  justify  the  act  and 
bring  exemption  from  damages. 

Sec.  11.    THE  LAW  OF  JUDICIAL  PROCEDURE.  The 

law  of  judicial  procedure  is  the  law  that  governs  the  presenta- 
tion and  trial  of  cases  in  the  courts. 

A  very  important  branch  of  the  law  is  that  law  by  which 
the  prosecution  and  defense  of  cases  in  the  courts  is 
governed.  This  law,  it  will  be  noticed  at  once,  differs 
from  all  of  the  other  branches  in  a  very  basic  way.  It 
confers  no  rights,  but  only  determines  how  the  rights  con- 
ferred by  the  other  branches  shall  be  asserted.  It  is 
sometimes  called  "adjective  law,"  and  the  other  branches 
of  the  law  "substantive  law." 

The  adjective  law  includes  the  law  of  pleading  by  which 
the  written  statement  of  the  case  and  of  the  defense  is 
governed.  This  law  by  the  early  common  law  courts  was 
very  technical  and  exact,  so  that  frequently  great  injus- 
tice was  done  to  litigants  by  the  enforcement  of  the  rules 
of  pleading.  The  rules  now  are  vastly  more  liberal,  and 
pleadings  are  subject  to  ready  amendment.  It  must  al- 
ways remain  true,  however,  that  in  any  system  of  judicial 
procedure  there  must  be  rules  to  govern  the  statement  of 
the  respective  sides,  and  suitors  must  be  required  to  con- 
form to  these  rules.  The  decision  of  the  case  upon  its 
merits  should  however,  be  the  governing  consideration, 
and  all  rules  of  pleading  made  subservient  thereto. 

The  adjective  law  also  includes  all  of  the  law  of  judicial 
procedure  and  practice  governing  the  progress  of  the 
case  in  its  trial,  the  rendition  of  the  judgment,  the  right 
and  manner  of  appeal  to  higher  courts,  and  all  of  the 
steps  that  have  to  do  with  judicial  determination  of  a 
cause. 


42  The  Law  of  Contracts. 

Sec.  12:  THE  OTHER  BRANCHES  OF  THE  MUNICI- 
PAL LAW. 

We  have  considered  above  the  chief  branches  of  the 
law  which  we  will  not  consider  elsewhere  at  length.  The 
other  branches  are  taken  up  at  length  in  this  volume  and 
companion  volumes. 


CHAPTER  3. 

FORM  OF  LAW. 

Sec.  13.    PURPOSE  OF  THIS  CHAPTER. 

In  this  chapter  we  propose  to  inquire  into  the  form 
which  the  law  takes  in  its  expression.  Where  it  is  stated, 
so  that  we  may  read  it  ?    Who  has  authority  to  state  it  ? 

Sec.  14.  WRITTEN  LAW.  Written  law  is  the  law  pre- 
scribed by  a  body  having  law  making  power,  and  is  so  called 
because  the  permanent  memorial  of  it  is  in  writing. 

Law,  as  we  have  noticed,  is  essential  to  government. 
Necessarily,  then,  there  must  be  a  law  maker  or  a  law 
making  body.  In  England  it  is  the  Parliament,  in  the 
United  States,  the  Congress,  and  in  the  various  states, 
the  State  assemblies.  As  law  when  made  by  a  law  making 
body  is  in  the  form  of  a  permanent  written  record,  it  has 
come  to  be  called  written  law.  Obviously,  this  term 
would  include  all  state  papers  that  have  the  force  of  law, 
treaties  and  constitutions  as  well  as  statutes  and  city  ordi- 
nances.    Let  us  briefly  notice  each  of  these. 

Constitutions  we  have  already  considered. 

Treaties  are  compacts  between  nations.  In  the  United 
States  they  are  in  the  nature  of  legislative  acts  and  are 
expressly  declared  by  the  constitution  to  be  with  the  con- 
stitution the  "supreme  law  of  the  land."  Accordingly, 
the  state  legislatures  as  well  as  Congress  must  observe 
them. 

43 


44  The  Law  of  Contracts. 

"Statutes"  is  a  word  sometimes  used  in  a  larger  sense 
to  include  state  papers  of  any  sort,  but  as  commonly 
employed  and  understood  signifies  the  enactments  of 
the  law  making  body  in  the  pursuance  of  its  norma) 
powers.  In  our  discussion  of  constitutional  law  we  have 
noted  the  power  of  the  federal  congress  and  the  power 
of  the  state  assemiblies  to  enact  statutes  and  that  any 
attempted  enactment  that  is  contrary  to  or  inhibited  by 
the  constitution  is  void  and  of  no  effect  and  the  court 
will  so  declare  it. 

Sec.  15.  CODES.  A  code  is  a  statutory  enactment  which 
assumes  to  put  the  law  of  any  particular  subject  in  a  complete 
written  form,  or  which  assumes  to  embody  the  entire  law  of 
the  jurisdiction  in  orderly  shape. 

A  form  of  statutory  law  is  that  of  the  code.  A  code  is 
a  textual  embodiment  of  the  law  on  a  given  subject  or  of 
all  the  law.  The  Code  Napoleon  is  the  first  great  ex- 
ample in  history.  In  the  United  States  there  has  been 
but  Httle  codification  until  the  3d  quarter  of  the  1800's. 
Georgia,  Iowa,  Dakota  and  California  were  the  first 
states  to  codify  their  entire  law;  about  a  dozen  states 
now  have  such  codes.  The  statutory  law  of  the  United 
States  and  of  the  several  states  has  been  enacted  from 
time  to  time  as  need  has  required.  But  attempts  have 
been  made  to  codify  on  various  subjects. 

While  there  is  much  to  be  said  in  favor  of  codification, 
especially  of  the  law  of  certain  subjects,  there  are  dangers 
that  surround  it.  Unskilful  codification  is  likely  to  twist 
and  warp  the  law  from  the  symmetrical  growth  which  it 
would  have  with  time  by  the  enactment  of  statutes  from 
time  to  time  and  the  development  of  the  common  law. 


American  Commercial  Law.  45 

For  this  reason  codification  more  befits  subjects  of  the 
law  that  are  already  fairly  well  developed. 

Sec.  16.  UNIFORM  LAWS.  A  number  of  laws,  chiefly 
on  essentially  commercial  subjects,  have  been  drafted  by  a 
commission,  known  as  the  Commissioners  on  Uniformity  of 
Legfislation,  and  adopted  more  or  less  widely  by  the  various 
states  for  the  purpose  of  establishing  a  uniformity  on  the 
subjects  covered  throughout  the  several  states. 

As  the  federal  constitution  takes  over  into  national  do- 
main only  the  powers  specifically  enumerated,  and  leaves 
to  the  state  the  g^reat  bulk  and  reserve  of  power  over  com- 
mercial and  other  questions  we  have  the  possibility  of 
the  law  developing  diflferently  in  different  states.  To 
overcome  this  tendency,  the  different  states  have  within 
times  fairly  recent  appointed  commissioners  upon  uni- 
formity of  legislation  who  have  drafted  bills  upon  various 
subjects  and  proposed  them  for  enactment  to  the  several 
states  of  the  union.  Some  of  these  acts  have  been  quite 
widely  adopted,  while  others  have  been  slow  of  ac- 
ceptance.   The  principal  acts  are  as  follows: 

(i)     Negotiable  Instruments  Act.^ 

(2)  Sales  Act  J 

(3)  Bills  of  Lading  Act."^ 

(4)  Warehouse  Receipt  Act!' 

(5)  Partnership  Act.^ 

(6)  Limited  Partnership  Act.^ 

(7)  Stock  Transfer  Act.^ 

Sec.  17.  UNWRITTEN  LAW.  The  unwritten  or  com- 
mon law  is  the  law  declared  by  the  judges  in  the  decision  of 

6.  See  Volume  on  Negotiable  Instruments  in  this  series. 

7.  See  Volume  on  Bailments,  Carriers  and  Sales  in  this  series. 

8.  See  Volume  on  Partnerships  in  this  series. 
Q.  See  Volume  on  Corporations  in  this  series. 


46  The  Law  of  Contracts. 

litigated  cases  which  there  is  no  written  law  to  cover  and  is 
derived  from  the  common  ideas  of  right  and  expediency. 

It  is  a  little  difficult  to  define  the  common  law  without 
giving  the  impression  that  the  judges  are  law  makers  in 
all  cases  in  which  the  legislature  has  not  spoken.  Such 
an  impression  would  be  very  far  from  the  truth.  The 
early  English  writers  defined  the  common  law  as  that 
law  which  had  been  in  existence  for  so  long  that  the 
memory  of  man  runneth  not  to  the  contrary.  They 
thought  of  it  as  law  the  origin  of  which  had  been  lost  in 
the  mists  of  antiquity.  One  writer  says  that  it  originated 
in  statutes  worn  out  by  time.  This  is  pure  fiction  and  is 
an  example  of  the  fictions  in  which  the  earlier  writers 
delighted  to  deal  in  the  explanation  of  legal  facts. 

Common  law  is  really  judge  made  law,  but  only  in  the 
sense  that  judges  must  declare  and  apply  the  fundamental 
ideas  of  justice  developed  by  the  people  at  large.  My- 
riads of  cases  must  come  before  them  for  decision  that 
involve  questions  of  common  right  and  wrong  and  ques- 
tions of  customs  and  even  of  expediency  upon  which  there 
is  no  statutory  law  which  they  must  decide.  In  so  decid- 
ing them  they  make  law,  and  other  judges  in  future  cases 
will  strive  to  follow  the  precedent  unless  they  believe  it 
manifestly  wrong,  in  which  case  it  will  be  modified  or 
overridden. 

The  great  foundation  of  our  law  is  the  common  law. 
Statutes  add  to  it  or  modify  it  or  alter  it,  or  re-state  it. 

Let  us  see  if  we  cannot  get  a  more  adequate  idea  of 
the  nature  of  the  common  law  by  an  illustration.  Sup- 
pose one  man  slays  another  without  cause.  No  statute 
has  been  enacted  defining  this  to  be  a  crime.  The  slayer 
is  brought  before  the  bar  of  justice.  The  court  declares 
him  to  be  guilty  of  a  crime  by  the  common  law.     Note 


American  Commercial  Law.  47 

that  in  this  instance,  the  judge  does  not  proclaim  a  general 
rule  to  govern  future  cases,  as  statutes  do,  but  merely 
decides  the  case  before  him.  Or,  again,  we  shall  notice 
in  the  law  of  contracts,  the  contractual  rights  and  liabil- 
ities of  minors.  That  whole  subject  has  developed  as  a 
part  of  the  common  law  as  innumerable  cases  involving 
particular  facts  have  arisen  for  decision. 

The  common  law  is  found  in  the  reports  of  cases  to  be 
considered  in  a  following  section. 

Sec.  18.  JUDICIAL  REPORTS.  The  decisions  of  the 
courts,  with  the  opinions  sustaining  them,  are  preserved  in 
books  called  judicial  reports. 

The  courts  in  deciding  the  cases  coming  before  them, 
whether  involving  statutory  law  or  common  law  or  both, 
generally  in  the  higher  courts  accompany  them  with  opin- 
ions setting  forth  the  reasons  for  their  decision.  The 
opinions  are  published  in  books  termed  judicial  reports 
and  they  constitute  one  of  the  most  important  sources 
from  which  the  lawyer  obtains  his  estimate  of  the  law. 

In  the  early  days  reporting  of  the  cases  was  done  as 
private  enterprise  and  most  of  these  earlier  reports  go  by 
the  name  of  the  reporter.  Thus  Marbury  v.  Madison,  i 
Cranch,  137,  means  the  United  States  Supreme  Court 
case  of  Marbury  against  Madison,  reported  in  Cranch's 
reports,  Volume  i,  at  page  137.  Reports  now  go  by  the 
name  of  the  jurisdiction,  as  McDonald  v.  City,  258  111.  52, 
and  the  earlier  reports  have  been  numbered  in  the  series 
so  that  the  report  of  i  Cranch  could  now  also  be  identi- 
fied as  5  United  States. 

The  judicial  reports  are  as  important  in  determining 
the  statutory  law  as  the  common  law.  They  are,  generally 
speaking,  the  only  repository  of  the  common  law.    Text 


48  The  Law  of  Contracts. 

books  which  are  written  upon  the  common  law  derive 
their  information  from  the  reports.  But  while  the  statutes 
are  preserved  in  the  legislative  archives  and  separately 
published,  and  we  need  not  go  to  the  reports  to  find  them 
out,  yet  the  judges  must  construe  and  apply  the  statutes 
as  they  decide  cases  covered  by  them;  and  it  is  as  im- 
portant to  our  knowledge  of  the  statutory  law  to  find 
how  it  has  been  construed  and  applied  to  different  sets  of 
facts  as  it  is  to  know  the  text  of  the  statutes.  For  stat- 
utes are  necessarily  very  general  in  their  terms,  and  fre- 
quently need  construction,  and  certainly  need  a  great 
amount  of  consideration  in  applying  them  to  the  thousand 
different  sorts  of  cases  that  arise.  For  instance,  if  a  stat- 
ute says  that  a  workman  injured  in  the  course  of  his  em- 
ployment shall  have  compensation,  we  have  a  multitude 
of  questions  as  to  what  constitutes  the  course  of  employ- 
ment, upon  which  the  statute  cannot  possibly  be  explicit 
not  only  because  of  the  great  amount  of  detail  that  would 
be  required  but  because  also  of  the  impossibility  of  fore- 
seeing all  of  the  divers  facts  that  will  arise.  Is  an  acci- 
dent in  the  course  of  going  to  or  from  work  in  the  course 
of  the  employment?  If  it  occurs  during  the  lunch  hour 
upon  the  premises?  Suppose  the  workman  is  doing  an 
errand  for  the  employer  upon  his  way  home  from  work ; 
suppose  that  being  sent  upon  an  errand  during  working 
hours  he  deviates  for  a  purpose  of  his  own  and  is  in- 
jured. We  can  readily  see  that  if  we  had  a  case  involving 
facts  of  this  sort  we  would  not  only  have  to  consult  the 
statute  on  that  subject,  but  also  the  reports  to  find  the 
construction  and  application  of  the  statute  to  a  case  as 
near  our  own  as  possible.  So  that  we  may  readily  see 
how  important  the  judicial  reports  are,  first,  as  the  sole 
repository  of  the  common  law,  second,  as  the  exposition 
of  the  statutory  law. 


American  Commercial  Law.  49 

Sec.  19.  DOCTRINE  OF  STARE  DECISIS.  In.  the 
English  and  American  law  it  is  the  policy  to  stand  by  de- 
cided cases. 

From  what  has  been  said  in  the  former  section  it  is 
apparent  that  we  depend  upon  past  decisions  as  guides  to 
what  the  court  will  do  in  future  decisions  upon  similar 
facts.  From  what  the  court  has  said  we  determine  what 
the  law  is,  that  is,  what  the  court  will  continue  to  say. 
The  court  will  stand  by  precedents  and  the  precedents 
form  the  law.  This  doctrine  is  expressed  in  the  words 
"stare  decisis." 

Precedents  will  be  overruled  by  the  courts  where  mani- 
festly unjust  or  erroneous  or  out  of  harmony  with  the 
decisions.  And  the  law  may  be  so  gradually  modified 
that  a  precedent  of  years  ago  may  become  overruled  al- 
most without  any  appearance  thereof.  Legislation,  may 
of  course  at  any  time,  override  prior  decisions. 

Decisions  of  other  jurisdictions  have  only  a  persuasive 
force ;  they  are  not  binding. 

Sec.  20.  SECONDARY  SOURCES  OF  THE  LAW.  Text 
books,  encyclopedias,  digests,  derive  their  information  fromi 
the  statutes  and  reports  and  constitute  very  great  helps  in 
finding  the  law. 

Finding  the  law  is  greatly  facilitated  today  by  the  fact 
that  there  are  cyclopedias,  text  books,  digests  and  other 
law  finders  by  which  the  law  in  the  reports  is  arranged 
and  pointed  out.  Were  it  not  for  the  fact  that  this  work 
is  done  for  the  lawyer,  he  would  find  himself  helpless  in 
the  enormous  mass  of  material  he  would  have  to  digest 
for  himself.  To  thoroughly  investigate  the  law  on  any 
point  he  of  course  goes  to  the  statutes  and  reports  them- 
selves, but  he  is  able  to  find  his  cases  expeditiously 
through  these  secondary  authorities. 
Bays— 4 


CHAPTER  4. 
THE  JUDICIAL  SYSTEM. 

Sec.  21.  FUNCTION  OF  THE  COURTS.  The  courts  are 
the  constituted  tribunals  for  the  trial  of  cases  according  to  the 
law  as  interpreted  by  them. 

In  our  scheme  of  government  we  have  the  legislature 
to  make  the  law,  the  judiciary  to  interpret  and  apply  it 
to  cases,  and  the  executive  to  execute  it.  We  have  al- 
ready seen,  that  the  judges  in  their  declaration  of  the 
common  law,  practically  assume  the  function  of  law 
makers  upon  matters  of  fundamental  principles  where  the 
legislature  has  not  spoken,  although  theoretically  they 
have  no  law  making  power,  and  practically  also  they  have 
none  except  in  the  sense  indicated — that  is  to  apply  the 
customs  that  have  become  established  and  the  principles 
of  right  which  are  generally  accepted.  The  interpretation 
of  statutes  and  their  application  to  varying  sets  of  fact 
constitutes  an  essential  adjunct  to  the  statutory  law  and 
must  always  be  considered  in  the  understanding  of  the 
law. 

We  have  also  seen  that  it  is  the  function  of  courts  to 
determine  whether  statutes  are  constitutional  or  not. 

The  courts  sit  for  the  trial  of  cases  and  it  is  only  in  the 
consideration  of  actual  events  that  call  for  the  application 
of  the  law  that  they  will  render  any  opinion  upon  it. 

Sec.  22.  COURTS  OF  LAW  AND  COURTS  OF 
EQUITY.  In  English  and  American  jurisprudence  rights, 
titles  and  remedies  are  of  two  classes :  those  developed  in  the 

50 


American  Commercial  Law.  51 

so-called  courts  of  law;  and  those  which  are  of  the  kind  de- 
veloped in  the  courts  of  equity. 

The  courts  of  law  in  England,  established  by  the  King 
to  constitute  the  judicial  system  of  the  realm,  except  as 
he  might  himself  dispense  justice  as  a  part  of  his  preroga- 
tive, developed  a  jurisdiction  based  upon  precedent,  which 
was  well  enough  and  the  theory  of  our  own  judicial  law 
today,  except  that  they  permitted  themselves  to  be  limited, 
fettered  and  hindered  by  such  precedents  in  the  law  of 
pleading — they  came  to  think  of  a  right  and  a  remedy  in 
terms  of  a  "form  of  action."  The  word  action  means 
suit,  and  a  form  of  action  is  the  form  of  pleading  in 
which  one  must  bring  his  suit.  These  forms  became  es- 
tablished by  precedents  and  then  were  limited  by  those 
precedents.  A  suitor  had  no  right  of  action  unless  he 
could  find  a  form  of  action  to  suit  his  case ;  if  he  could 
find  no  such  form,  he  had  to  twist,  warp  or  limit  his  right 
until  it  did  conform;  and  if  he  could  not  even  do  this  he 
was  without  remedy.  Forms  of  action  as  they  came  to  be 
developed  were  chiefly  of  three  sorts. 

( 1 )  Real  actions,  for  the  recovery  of  one's  real  estate ; 

(2)  Personal  actions  ex  contractu; 

(a)  Covenant,  or  suit  for  damages  on  a  sealed 

promise ; 

(b)  Debt,  or  suit  for  money  debt; 

(3)  Personal  actions  ex  delicto; 

(a)  Trespass; 

(b)  Detinue,  or  suit  for  damages  for  wrong- 

ful detention  of  personal  property. 
Each  of  these  forms  of  action  had  definite  rules  to 
govern  it,  violation  of  which  was  fatal,  as  though  plead- 
ing were  a  game  for  the  sharpest  to  win  at. 

Not  only  were  the  forms  of  action  thus  limited ;  but  it 
will  be  noticed  how  narrow  the  Court's  power  by  way  of 


52  The  Law  of  Contracts. 

remedy.  If  one's  real  property  were  withheld  from  him 
by  one  who  had  no  right  thereto,  he  could  obtain  a  judg- 
ment for  its  recovery;  if  one's  personal  property  were 
wrongfully  detained  he  could  recover  it  or  its  value  in  an 
action  of  detinue ;  if  the  limited  kinds  of  contracts  recog- 
nized by  the  forms  of  action  were  broken,  or  if  the  limited 
number  of  torts  so  recognized  were  committed  he  could 
have  damages.  Damages,  recovery  of  one's  property — 
these  were  the  only  remedies  recognized  as  within  the 
court's  power  to  give. 

In  the  time  of  Edward  I,  to  relieve  this  situation,  Par- 
liament enacted  the  Statute  of  Westminster  which  author- 
ized and  directed  the  issuance  of  new  writs,  and  by  virtue 
of  this  statute  common  law  pleading  took  a  long  step 
forward  and  became  far  more  elastic  and  permitted  the 
development  of  the  common  law  into  the  admirable  struc- 
ture that  it  came  to  be.  Forms  of  action  known  as  Actions 
on  the  Case  were  devised  and  cases  founded  on  negli- 
gence, which  today  forms  so  large  a  body  of  law,  could  be 
brought ;  also  actions  for  the  breach  of  executory  un- 
sealed contracts  in  which  damages  are  unliquidated  until 
assessed  by  a  jury  were  recognized,  and  thus  came  into 
being  our  simple  bilateral  contract  as  we  have  it  today. 

But  still  the  courts  in  spite  of  this  statute,  enforced 
with  great  rigidity  the  rules  of  pleading,  and  forbade  the 
multiplication  of  forms  of  actions  except  where  similar 
to  those  already  existing,  and  limited  their  remedies  as 
theretofore. 

But  in  the  meantime  English  law  was  finding  an  outlet 
otherwise.  The  King  still  had  his  jurisdiction  of  Htiga- 
tion  if  he  chose  to  exercise  it.  He  was  the  fountain  of 
justice.  Litigants  who  could  not  obtain  redress  in  the 
established  courts  of  law  petitioned  it  of  the  King,  recit- 
ing as  the  basis  of  their  right,  that  they  had  no  adequate 
remedy  "by  the  hard  and  fast  rules  of  the  common  law." 


American  Commercial  Law.  53 

Such  petitions  came  to  be  referred  to  the  Chancellor  "the 
keeper  of  the  King's  Conscience,"  to  whom  in  course  of 
time  the  petitions  were  made  directly  and  thus  came  to  be 
formed  the  Court  of  Chancery. 

Now  the  Court  of  Chancery  being  a  court  of  conscience 
established  its  jurisdiction  on  the  theory  of  equity,  and  so 
also  came  to  be  known  as  the  Court  of  Equity.  It  put  in 
force  many  equitable  maxims,  as  "He  who  wants  equity 
must  do  equity";  "he  who  comes  into  equity  must  come 
with  clean  hands";  "equity  aids  the  vigilant  and  not 
those  who  slumber  on  their  rights";  "equity  will  not 
suffer  a  wrong  without  a  remedy";  "equity  abhors  for- 
feitures"; and  a  number  of  others. 

Wherein  did  the  court  of  equity  give  a  more  adequate 
remedy  than  the  court  of  law?  In  three  broad  general 
ways :  It  recognized  rights  which  the  law  courts  knew 
not  of,  rights  based  on  mistake,  accident,  fraud,  and  the 
like ;  it  recognized  and  established  titles  the  law  court  did 
not  know,  title  by  assignment,  trusts,  etc.;  it  enforced 
remedies  of  a  great  range — injunctions,  specific  per- 
formances, accountings,  cancellations,  partitions,  removal 
of  clouds  on  titles,  discovery  of  evidence,  administration, 
receiverships,  and  so  on.  One  can  readily  see  how  in  the 
matter  of  remedy  it  brought  about  an  administration  of 
justice  far  superior  to  that  exercised  by  the  courts  of  law. 

This  jurisdiction  was  based  upon  the  inadequacy  of  the 
legal  remedy.  In  other  words  if  a  suitor  made  a  case 
which  showed  he  had  an  adequate  remedy  at  law,  the 
chancellor  refused  to  touch  it.  When  is  a  remedy  ade- 
quate at  law  ? 

The  remedy  of  the  law  courts  is  considered  adequate 
when  one  seeks  the  recovery  of  real  estate  wrongfully 
withheld  from  him. 

The  remedy  of  the  law  courts  is  adequate  when  one 
seeks  the  recovery  of,  or  value  of,  personal  property  be- 


54  The  Law  of  Contracts. 

longing  to  him  and  wrongfully  taken  and  withheld  from 
him. 

The  remedy  of  the  law  courts  is  adequate  where  one 
bases  his  action  upon  the  breach  of  a  contract  (with  some 
exceptions)  ;  damages  are  an  adequate  remedy. 

The  remedy  of  the  law  courts  is  adequate  where  one 
bases  his  action  upon  injury  sustained  by  him  in  the  com- 
mission of  a  past  tort ;  damages  will  compensate  him. 

In  all  of  these  cases  the  court  of  equity  will  refuse  to 
listen. 

The  court  of  equity  as  it  developed  was  looked  upon 
with  disfavor  by  the  common  law  courts,  who  feared  its 
inroads ;  but  gradually  it  became  recognized  that  the  mis- 
sion of  the  court  of  chancery,  being  based  on  the  inade- 
quacy of  the  legal  remedy  was  not  to  replace,  but  to  sup- 
plement the  common  law  jurisdiction.  And  so  came 
harmony  and  co-operation. 

Today  we  have  in  some  states  an  attempted  abolition 
between  courts  of  law  and  courts  of  equity.  In  other 
courts  the  distinction  is  still  preserved,  although  the 
same  court  exercises  the  law  jurisdiction  and  the  equi- 
table jurisdiction,  having  a  law  side  and  an  equity  side. 
A  judge  may  hear  law  cases  one  day  and  chancery  cases, 
the  next.  In  the  Federal  Courts  the  distinction  is  clearly 
maintained  between  law  cases  and  equity  cases. 

Sec.  23.  COURTS  OF  ORIGINAL  JURISDICTION 
AND  OF  REVIEW.  Our  courts  may  be  divided  into  those 
courts  which  take  original  jurisdiction  for  the  trial  of  cases 
and  those  courts  to  which  a  defeated  party  in  the  original 
court  may  take  the  cause  for  purposes  of  review.  The  re- 
viewing court  does  not  retry  the  cause,  but  merely  reviews 
the  record. 

Courts  in  which  cases  are  begun  and  in  which  they  are 
tried  are  known  as  courts  of  original  jurisdiction.    After 


American  Commercial  Law.  55 

the  trial  has  been  had  and  the  judgment  rendered,  the 
party  who  has  been  defeated  may  feel  that  the  law  has 
been  misinterpreted  or  misapplied  and  in  that  case  he  may 
take  the  cause  to  a  higher  court  by  way  of  appeal  or  sim- 
ilar procedure.  The  higher  court  has  been  constituted  as 
a  court  of  review,  and  serves  as  a  check  upon  the  lower 
court,  for  it  is  not  likely  that  both  courts  will  make  the 
same  error.  This  higher  court  does  not  retry  the  cause; 
it  hears  no  evidence;  it  merely  passes  upon  the  record 
that  is  brought  before  it,  to  consider  whether  in  the  deci- 
sion of  the  court  below  there  was  error  which  wrought 
an  injustice  or  that  may  have  done  so.  If  convinced  of 
such  error,  it  will  reverse  the  judgment  below,  and  if 
justice  requires  will  send  the  case  back  for  a  new  trial. 
It  is  in  these  courts  of  review  that  the  opinions  are  rend- 
ered that  are  published  in  the  judicial  reports.  It  is  true 
that  we  have  some  sets  of  reports  of  opinions  rendered  in 
the  lower  courts,  but  this  is  not  now  usual  or  practicable. 
It  is  of  course  only  a  small  percentage  of  htigated  cases 
that  come  before  courts  of  review.  A  defeated  party 
only  increases  his  expenses  and  consumes  his  time  by  an 
appeal  unless  there  is  hope  of  reversal.  And  the  court 
above  will  not  interfere  with  the  function  of  the  court 
below  by  disturbing  findings  of  pure  fact  unless  clearly 
against  the  weight  of  the  evidence.  In  other  words,  sup- 
pose, plaintiff  testifies  one  way  and  defendant  to  the  con- 
trary, and  the  judge  or  jury  below  (according  to  whether 
there  is  a  jury  trial  or  not)  believes  the  plaintiff,  and 
judgment  is  accordingly  so  rendered.  The  court  above 
would  not  disturb  this  finding  of  fact  even  if  had  such 
higher  court  been  sitting  as  the  trial  court,  it  would  have 
believed  the  defendant,  but  will  only  consider  whether 
improper  evidence  was  admitted,  proper  evidence  ex- 
cluded, erroneous  instructions  given  to  the  jury,  or  any 


56  The  Law  of  Contracts. 

other  error  committed  by  which  the  defendant  has  been 
denied  a  fair  trial  according  to  law. 

Sec.  24.  THE  PROGRESS  OF  A  CASE  THROUGH 
THE  COURTS.  Below  is  given  in  a  very  general  way  a  view 
of  the  progress  of  a  civil  case  through  the  law  courts. 

(a)  Service  on  defendant. 

It  is  essential  that  the  defendant  be  brought  into  court 
to  answer  to  plaintiff's  claim.  He  may  voluntarily  file  his 
appearance,  which  brings  him  before  the  court  without 
further  action ;  but  unless  it  is  a  friendly  suit  ordinarily 
he  must  be  summoned  in.  A  process  therefore  issues  at 
plaintiff's  request  known  as  a  summons,  which  is  served 
by  the  sheriff  (in  United  States  Courts  he  is  called  the 
Marshal  and  in  some  courts  he  is  called  the  Bailiff),  noti- 
fying the  defendant  to  appear.  This  must  be  served  upon 
the  defendant  personally  in  ordinary  law  cases,  by  read- 
ing it  to  him  and  leaving  a  copy  with  him.  In  some  cases 
involving  property  within  the  jurisdiction  of  the  court, 
service  may  be  had  by  publication  if  defendant  cannot  be 
served  personally.  Unless  there  is  an  appearance,  or  the 
service  that  the  law  requires,  the  court  is  without  jurisdic- 
tion to  hear  the  cause,  and  any  proceedings  thereafter  are 
void. 

(b)  The  pleadings. 

I.  Plaintiff's  statement.  The  plaintiff  must  set  forth 
in  writing  the  general  facts  upon  which  he  bases  his  claim. 
At  common  law  this  is  called  a  declaration,  and  there  were 
a  great  many  technical  rules  that  had  to  be  observed  in 
drafting  it.  Under  reformed  procedure  a  simplification 
and  greater  liberality  has  been  attempted,  and  the  state- 
ment is  now  frequently  called  a  Statement  of  Claim.    (In 


American  Commercial  Law.  57 

equity  the  statement  of  the  case  is  called  a  Bill  of  Com- 
plaint.) 

2.  Defendant's  statement.  The  defendant,  being  prop- 
erly summoned  in,  must  answer,  within  the  time  pre- 
scribed by  the  rules,  and  his  pleading  is  called  in  com- 
mon law  pleading  a  Plea  (in  some  states,  an  answer). 
If  he  is  convinced  that  plaintiff's  statement  is  insufficient 
as  a  statement  of  a  case,  he  may  demur,  that  is,  allege 
that  the  statement,  taken  in  its  most  favorable  aspect, 
does  not  make  out  a  case.  The  court  will  pass  upon  this 
and  either  overrule  it  and  order  defendant  to  answer,  or 
sustain  it,  and  allow  plaintiff  to  amend,  unless  it  appears 
his  case  is  such  that  amendment  cannot  cure  it.  In  the 
same  way  plaintiff  may  demur  to  the  defense. 

The  defense  under  reformed  procedure  has  likewise 
been  simplified, 

3.  Plaintiff's  reply.  Plaintiff  may  reply  to  the  plea  if 
it  calls  for  reply.  This  is  called  the  Replication  in  com- 
mon law  pleading.  If  no  reply  is  necessary,  plaintiff 
merely  joins  issue;  at  common  law,  by  filing  a  similiter. 

(c)  The  trial. 

The  case  being  put  at  issue,  now  proceeds  to  trial.  In 
courts  of  law  either  side  is  entitled  to  a  jury  trial  (this 
is  not  true  in  equity  cases).  Plaintiff  puts  in  his  evidence 
to  support  his  declaration  or  statement  of  claim.  Defend- 
ant puts  in  his  evidence  sustaining  his  defense.  Questions 
of  the  law,  the  court  decides.  Questions  of  fact  are  de- 
cided by  the  jury  under  the  instructions  of  the  court  as 
to  the  law  governing  the  facts.  If  both  sides  waive  a 
jury,  the  court  acts  also  as  arbiter  of  the  facts. 

The  jury's  decision  is  known  as  a  verdict. 

The  decision  of  the  court  where  there  is  no  jury  is 
called  a  finding. 


58  The  Law  of  Contracts. 

The  formal  pronouncement  by  the  judge  upon  the  ver- 
dict or  finding  is  called  a  judgment. 

(d)  Appeal. 

The  defeated  party  may  appeal,  as  we  have  discussed 
in  another  connection. 


CHAPTER  5. 
ADMINISTRATIVE     BOARDS    AND     COMMISSIONS. 
Sec.  25.    IN  GENERAL. 

There  have  been  created  in  the  federal  government  and 
in  the  state  governments,  boards  and  commissions  of  con- 
siderable importance  in  the  administration  of  certain  laws. 
These  boards  and  commissions  do  not  constitute  a  part 
of  the  judicial  system.  They  may  have  hearings,  make 
investigations,  subpoena  witnesses,  and  enter  decrees,  and 
the  conduct  of  an  investigation  before  them  may  have  the 
appearance  of  the  trial  of  a  cause,  but  they  are  not  judi- 
cial courts,  except  in  a  very  limited  sense,  and  generally 
their  final  orders  are  appealable  to  the  regular  courts  for 
final  decision. 

The  chief  boards  and  commissions  for  the  administra- 
tion of  the  law  under  the  federal  acts  are : 

(i)     The  Interstate  Commerce  Commission; 

(2)  The  Federal  Reserve  Board ; 

(3)  The  Federal  Trade  Commission; 

(4)  The  Federal  Land  Office, 

The  chief  boards  under  the  state  acts  are : 

( 1 )  Public  Utility  Commissions  ; 

(2)  Employer's  Liability  Commissions; 

(3)  Commissions  to  regulate  or  revise  matters   of 

taxation. 

(4)  The  Insurance  Commission; 

(5)  The  Securities  Commission  (Blue  Sky  Law); 

(6)  The  Board  of  Pardons; 

59 


6o  The  Law  of  Contracts. 

(7)  The  Licensing  Boards  (law,  medicine,  dentistry, 

accounting,  etc.)  ; 

(8)  The  Corporation  Commission. 

Sec.  26.  THE  INTERSTATE  COMMERCE  COMMIS- 
SION. The  Interstate  Commerce  Commission  is  a  body  cre- 
ated to  inquire  into  the  management  of  the  business  of  in- 
terstate common  carriers,  and  to  regulate  such  business. 

The  Interstate  Commerce  Commission  is  an  administra- 
tive body  with  quasi  judicial  powers  consisting  of  seven 
members,  appointed  by  the  President  by  and  with  the 
advice  and  consent  of  the  Senate.  It  was  created  to  in- 
quire into  the  business  of  common  carriers  doing  an  inter- 
state business,  and  to  that  end  might  subpoena  witnesses 
and  require  the  production  of  books  and  papers.  It  did 
not  originally  have  power  to  fix  maximum  rates  but  that 
power  was  given  in  1906  (The  Hepburn  Act).  (See  "The 
Rise  of  the  Interstate  Commerce  Commission,"  by  Bruce 
Wyman,  in  24  Yale  Law  Review,  529,  for  interesting  his- 
tory of  the  commission  showing  the  amendments  from 
time  to  time  adding  to  the  powers  and  converting  it  from 
a  body  of  inquiry  into  one  with  quasi  judicial  powers.) 

Sec.  27.  THE  FEDERAL  RESERVE  BOARD.  The 
Federal  Reserve  Board  is  a  board  or  commission  created  in 
connection  with  the  Federal  Reserve  Banking  System  to 
maintain  a  supervision  over  and  to  issue  reg^ations  govern- 
ing the  Federal  Reserve  Banks. 

The  Federal  Reserve  Board,  consisting  of  seven  mem- 
bers, was  created  by  the  Federal  Reserve  Act,  enacted 
1913,  as  a  part  of  Federal  Reserve  Banking  System  to 
maintain  an  advisory  and  administrative  supervision  over 
Federal  Reserve  Banks.  It  has  power  to  examine  the 
books  and  accounts  of  the  Federal  Reserve  banks,  may 


American  Commercial  Law.  6i 

permit  the  rediscount  of  discounted  paper  of  other  Fed- 
eral Reserve  banks,  at  rates  fixed  by  it,  to  suspend  the 
reserve  requirements  of  the  law  for  short  periods,  to 
super\'ise  and  regulate  issue  and  retirement  of  notes,  to 
suspend  or  remove  officers  of  Federal  Reserve  banks,  and 
so  on, 

(Associated  with  this  board  is  the  Federal  Advisory 
Council,  consisting  of  as  many  members  as  there  are  Fed- 
eral Reserve  districts.  Their  powers  are  purely  ad- 
visory.) 

Sec.  28.  THE  FEDERAL  TRADE  COMMISSION. 
The  Federal  Trade  Commission  is  a  commission  empowered 
to  inquire  into  unfair  trade  and  monopolistic  practices,  to 
hold  hearings  thereon,  to  enter  orders,  appealable  to  the 
federal  courts,  and  to  report  upon  and  advise  legislation. 

The  chief  function  of  the  Federal  Trade  Commission 
is  to  inquire  into  and  prevent  unfair  trade  practices.  It 
was  authorized  by  an  Act  of  1914,  to  consist  of  five  mem- 
bers appointed  by  the  President,  by  and  with  the  advice 
and  consent  of  the  Senate.  It  has  power  to  inquire  into 
alleged  unfair  trade  practices  in  specific  instances,  to  hold 
hearings,  and  subpoena  witnesses.  Its  orders  are  re- 
viewable by  any  party  who  is  ordered  to  desist  from  any 
alleged  unfair  practice  by  an  appeal  to  the  United  States 
Circuit  Court  of  Appeals.  It  may  gather  data  from  cor- 
porations respecting  trade  practices  and  may  advise  the 
enactment  of  trade  laws.  It  has  jurisdiction,  of  course, 
only  in  respect  to  interstate  commerce. 

Sec.  29.  PUBLIC  UTILITY  COMMISSIONS.  In  the 
various  states  there  are  boards  or  commissions  for  super- 
vision and  regulation  of  public  utility  corporations. 

By  various  names  and  with  varying  powers,  commis- 
sions have  been  established  in  the  different  states  for  the 


62  The  Law  of  Contracts. 

purpose  of  administering  the  law  governing  public  util- 
ities (railroads,  telegraph  and  telephone  companies,  pub- 
lic warehouses,  street  railways,  pipe  lines,  lighting  com- 
panies, and  the  like).  Their  powers  depend  entirely  upon 
the  statute,  but  generally  speaking,  they  may  conduct 
hearings,  establish  maximum  rates,  regulate  the  conditions 
of  service,  etc. 

Sec.  30.  EMPLOYERS  LIABILITY  COMMISSIONS. 
In  most  states  there  are  laws  enacted  to  provide  for  the 
compensation  of  employees  by  employers  for  injuries  sus- 
tained while  at  work  regardless  of  the  employer's  fault  or  the 
employee's  lack  of  fault.  Boards  are  created  to  award  the 
compensation.    These  orders  are  appealable  to  the  courts. 

Formerly  the  law  was  that  an  employee  could  not  re- 
cover for  an  injury  sustained  in  the  course  of  his  em- 
ployment unless  his  employer  was  negligent  and  the  em- 
ployee was  not  negligent.  But  the  theory  of  the  law  now 
is  that  the  employer  should  compensate  for  injuries  sus- 
tained by  the  employee  regardless  of  the  question  of  negli- 
gence (unless  under  some  laws  the  employer  or  employee 
elect  before  the  injury  occurs  not  to  come  under  the  act). 
These  damages  are  awarded  by  a  board  or  commission. 
These  boards  are  administrative,  as  the  law  fixes  the 
amounts  payable  for  various  injuries,  but  they  are  quasi- 
judicial  in  that  they  decide  questions  of  fact,  e.  g.,  as  to 
whether  an  accident  happened  in  the  course  of  the  em- 
ployment; but  their  decisions  may  be  reviewed  by  the 
courts. 

Sec.  31.  COMMISSIONS  TO  REVISE  OR  REGULATE 
TAXES.    Such  boards  are  in  existence  in  the  different  states. 

Bodies  to  assess  taxes,  and  to  review  and  equalize 
taxes  exist  in  all  jurisdictions. 


American  Commercial  Law.  63 

Sec.  32.  OTHER  BOARDS  OR  COMMISSIONS.  The 
boards  and  commissions  listed  above  in  Section  25  have  the 
powers  and  functions  indicated  by  their  titles.  Space  will  not 
permit  fuller  description  here. 

It  would  be  interesting  to  note  the  powers  and  functions 
of  various  other  boards  and  commissions  by  which  the 
law  is  administered  but  it  is  not  possible  in  a  book  of  this 
sort  to  make  more  than  a  general  description. 


GENERAL  LAW  OF  CONTRACT. 


Bays — S 


GENERAL  LAW  OF  CONTRACT. 

PART  I. 
FORMATION  OF  CONTRACT. 

CHAPTER  I. 
DEFINITION  AND  CLASSIFICATION. 

Sec.  1.  CONTRACT  DEFINED.  A  contract  is  an  agree- 
ment that  contemplates  as  its  object  and  results  in  an  obliga- 
tion for  the  breach  of  which  a  suit  for  damages  may  be  main- 
tained in  a  court  of  law. 

The  word  "contract"  is  a  word  in  common  usage,  con- 
veying the  idea  of  agreement.  But  every  agreement  is 
not  a  contract.  It  must  be  an  agreement  intending  to 
create  and  that  does  create  a  legal  obligation  of  certain 
characteristics.  Some  agreements  are  merely  passive,  and 
result  in  no  obligation  whatever,  and  some  are  intended  to 
create  obligations  of  a  merely  social  sort,  and  some  agree- 
ments create  legal  obligations  of  a  different  nature,  as 
those  connected  with  the  marriage  relation,  or  those  at- 
taching to  holding  property  in  trust.  Those  agreements 
which  are  of  a  contractual  nature  are  those  which,  accord- 
ing to  usually  accepted  standards,  show  forth  an  intention 
to  create  obligations  of  legal  force,  for  the  breach  of 
which  the  injured  party  may  have  his  legal  remedy.  This 
is  no  more  than  saying  that  the  law  has  developed  con- 
sequent upon  a  demand  permitting  individuals  to  assume 

67 


68  The  Law  of  Contracts. 

obligations  by  making  agreements  with  each  other,  and 
to  accomplish  this  establishes  the  conditions  which  the 
agreement  must  meet. 

The  following  ideas  enter  into  the  legal  concept : 

(i)  An  agreement,  contemplating  and  resulting  in 

(2)  An  obligation 

(3)  Enforceable  in  a  court  of  law  by  an  award  of 

damages  and  in  some  cases  other  remedies. 

Sec.  2.    ESSENTIAL  ELEMENTS  OF  CONTRACTS. 

In  every  contract  we  must  have : 

1.  Competent  parties; 

2.  Offer  and  acceptance ; 

3.  A  legal  object; 

4.  Consideration,  or,  a  certain  form. 

These  are  all  considered  in  Part  I  of  this  book. 

Sec.  3.  KINDS  OF  CONTRACTS.  The  broadest  division 
of  contracts  is  into  formal  and  simple  contracts.  From  other 
standpoints  divisions  may  be  made  in  order  to  furnish  a  ter- 
minology indicating  the  condition,  state,  and  evidence  of  the 
contract. 

We  will  make  a  classification  of  contracts  at  this  time 
in  order  to  get  before  us  a  general  view  of  the  subject, 
and  to  define  in  part  the  terminology  hereafter  to  be  used. 
To  one  who  is  just  entering  upon  the  study  of  the  law 
of  contracts,  these  terms  seem  strange  and  have  little 
significance ;  yet  they  should  receive  careful  consideration 
at  this  point  for  the  purposes  mentioned.  Their  discus- 
sion will  follow  in  appropriate  place  throughout  the  text. 

We  may  classify  or  divide  contracts  as  follows: 


American  Commercial  Law.  69 

(1)  A  classification  of  contracts  in  respect  to  their 

validity  as  derived  from  form  or  consideration. 

a.  Formal  contracts,  whose  distinctive  element 

of  validity  is  form. 

1.  Contracts  of  record; 

a.  Judgments. 

b.  Recognizances. 

2.  Contracts  under  seal,  or  specialties. 

b.  Simple  contracts,  whose  distinctive  element 

of  validity  is  consideration. 

1.  Written,  but  not  under  seal ; 

2.  Oral  contracts ; 

3.  Implied  contracts. 

(2)  A  classification  in  respect  to  the  manner  or  form 

of  their  expression. 

a.  Express  contracts. 

1.  Formal  contracts. 

2.  Contracts   in   writing,   but   not   under 

seal. 

3.  *  Oral  contracts. 

b.  Implied  contracts. 

(3)  A  classification  indicating  state  of  performance. 

a.  Executory  contracts. 

1.  Contracts  in  which  one  party  performs 

an  act  for  the  prom»e  of  the  other 
party  thereafter  to  perform  an  act 
(executory  on  one  side,  called  also 
unilateral). 

2.  Contracts  consisting  in  their  inception 

of  promise  for  promise  (executory 
on  both  sides,  also  called  bilateral). 

b.  Executed  contracts ;  or  contracts  which  have 

been  fully  performed. 
It  will  be  noted  that  a  judgment  is  classed  as  a  con- 


70  The  Law  of  Contracts. 

tract.    But  this  is  really  a  fiction,  and  we  need  not  further 
consider  it  here.^ 

Example  i.  John  Doe  enters  into  a  written  agreement 
with  Richard  Roe  whereby  John  Doe  undertakes  to  sell 
and  Richard  Roe  to  buy  a  farm  for  $20,000.00  upon  terms 
stated.    We  have  in  this  example  a  contract  which  is: 

A.  Bilateral ; 

B.  Simple; 

C.  Express ; 

D.  In  writing. 

If  the  contract  above  had  the  seals  of  the  parties 
attached  to  their  signatures,  it  would  be  a  contract  under 
seal  instead  of  a  simple  contract. 

Example  2.  John  Doe  orders  groceries  from  Richard 
Roe's  store  saying  nothing  about  paying  for  them  and 
Roe  promises  to  send  them  over.  We  have  in  this  ex- 
ample a  contract  which  is: 

A.  Bilateral ; 

B.  Simple ; 

C.  Implied  as  to  Doe's  promise  to  pay ; 

D.  Express  as  to  Roe's  promise  to  deliver. 

Example  3.  John  Doe  offers  a  public  reward  to  any- 
one who  will  procure  certain  information  for  him.  Rich- 
ard Roe  furnishes  the  information.  Here  we  have  an 
example  of  a  contract  which  is  accepted  by  the  act  as  well 
as  thereby  performed.  It  is  a  unilateral  simple  contract. 
All  contracts  are  two  sided  and  in  that  sense  bilateral, 
but  the  word  unilateral  signifies  a  contract  in  which  one 
side  only  is  executory. 

I.  "It  is  an  obligation  of  this  character  which  is  unfortunately 
styled  a  contract  of  record  in  English  law.  The  phrase  is  unfor- 
tunate because  it  suggests  that  an  obligation  springs  from  agree- 
ment, which  is  really  imposed  on  the  parties  ab  extra."  Anson, 
Contracts,  Knowlton's  Am.  Ed.,  p.  7. 


CHAPTER  2. 

PARTIES  TO   CONTRACTS. 

A.    Who  Are  Parties. 

Sec.  4.  PARTIES  DEFINED.  A  party  to  a  contract  is 
a  person  who  by  himself  or  his  agent,  has  a  part  in  making 
the  contract. 

A  contract  carries  an  adversary  idea,  that  is  to  say, 
an  arrangement  of  those  who  form  it  on  different  sides 
having  interests  that  may  in  fact  be  mutual  but  which 
may  at  any  time  become  antagonistic  through  the  failure 
of  one  side  to  perform  and  thus  force  the  other  into 
court  for  the  protection  of  his  interests.  Accordingly 
every  contract  must  have  at  least  two  sides ;  but  it  may 
have  more.  There  may  be  any  number  of  persons  on 
any  side.  A  "party"  is  any  person  who  by  himself  or 
through  his  agent  has  been  a  maker  thereof.  No  other 
person  is  a  party,  even  though  named  in  the  contract, 
and,  generally  speaking,  can  have  no  rights  or  liabilities 
thereon. 

Sec.  5.  CAPACITY  OF  PARTIES  GENERALLY.  A 
natural  person  has  a  full  capacity  to  contract  when  of  legal 
age  and  in  possession  of  the  natural  faculties,  unless  the  law 
has  imposed  upon  him,  as  a  member  of  a  class,  a  disability. 
A  corporation  has  such  capacity  as  the  sovereign  has  be- 
stowed upon  it. 

We  note  at  the  outset  that  unless  a  person  is  not  of 
full  age,  or  is  not  in  the  possession  of  the  ordinary  nat- 

71 


72  The  Law  of  Contracts. 

ural  faculties,  or  is  not  a  member  of  a  class  which  the 
law,  for  reasons  of  public  policy,  has  placed  under  a 
total  or  partial  disability,  he  has  the  full  capacity  to 
contract;  he  is  free  to  impose  upon  himself  whatsoever 
contractual  obligations  he  will.  We  are,  then,  concerned 
only  with  those  exceptional  cases,  in  which  some  dis- 
ability is  imposed  by  the  law.  The  chief  of  these  are, 
(a)  minors,  (b)  married  women,  (c)  insane  persons, 
(d)  drunkards,  (e)  aliens,  and  (f)  artificial  persons  or 
corporations. 

The  class  composed  of  minors  is  of  course  far  the 
most  important  as  it  is  a  class  in  which  every  natural 
person  is  for  a  time  a  member, 

B.    Minors. 

Sec.  6.  WHO  ARE  MINORS?  A  minor  or  infant  is  one 
who  has  not  attained  the  age  which  the  law  deems  neces- 
sary to  give  him  his  full  maturity  of  mind  and  below  which 
he  requires  a  special  protection  from  the  state. 

In  the  legal  conception  all  children  are  under  guardian- 
ship, directly  by  their  parents  or  other  legal  guardian, 
and  indirectly  by  the  state.  They  are  mentally  incom- 
petent through  lack  of  experience  and  because  of  im- 
maturity of  mind,  and  therefore  not  legally  competent 
to  protect  their  own  interests  to  the  full  extent.  To 
afford  them  a  protection  to  which  the  adult  is  not  entitled, 
the  law  qualifies  their  liability  upon  contract. 

Now  the  distinction  between  infancy  and  adult  life 
is  not  arbitrary,  and  we  all  recognize  the  distinction  and 
act  upon  it,  but  we  cannot  point  to  any  particular  moment 
or  year  as  a  dividing  line.  Yet  to  have  a  workable  rule 
the  law  must  do  this  rather  arbitrary  thing  and  apply  it 
generally,  although  in  specific  instances  it  must  accom- 


American  Commercial  Law.  73 

plish  the  result  of  affording  a  person  of  a  certain  age 
a  protection  he  does  not  need,  as  much  as  another  of  a 
greater  age  does  need  it  to  whom  the  protection  is  denied. 
Some  young  men  of  eighteen  are  more  mature  than 
others  of  twenty-two ;  but  one  can  see  at  once  that  there 
is  no  workable  test  to  measure  these  things  except  by 
setting  a  line  to  apply  for  all,  as  suggested  by  normal 
experience.  This  the  law  has  done  by  saying  that  from 
the  standpoint  of  contract,  a  person  is  an  infant  or  a 
minor  until  his  twenty-iirst  birthday.  In  some  juris- 
dictions, females  attain  full  age  at  eighteen. 

Sec.    7.    POWER    OF    MINORS   TO    CONTRACT.     A 

minor  has  the  power  to  contract,  but  for  his  own  protection 
he  is  given  the  right  to  disaffirm,  or  withdraw  from,  any  con- 
tract made  by  him,  except  that  the  law  makes  him  absolutely 
liable  for  the  reasonable  value  of  necessaries  furnished  him 
at  his  request;  and  except  also  that  in  some  jurisdictions  he 
has  no  power  whatever  to  appoint  an  agent  for  important 
purposes. 

The  careless  statement  is  frequently  made,  that  a  minor 
has  no  power  to  contract,  except  for  necessaries,  but 
this  conception  is  erroneous.  Thfc  law  does  not  deny  him 
the  power  to  contract,  but  furnishes  him  with  relief  by 
way  of  disaffirmance  if  he  chooses  to  rely  upon  his  in- 
fancy. This  seems  to  be  the  true  view  of  the  present 
law.  The  contract  made  by  the  minor  he  may  not  care 
to  disaffirm,  and  the  other  party  cannot  avoid  on  the 
ground  of  the  minority  of  the  party  with  whom  he  has 
contracted. 2 

In  some  states  the  position  is  taken  that  a  minor  can- 

2.  Wright  v.  Buchanan,  287  111.  468. 


74  The  Law  of  Contracts. 

not  appoint  an  agent,^  but  the  better  view  is  that  there 
is  no  distinction  between  this  and  his  other  voidable 
contracts,  and  that  the  appointment  of  an  agent  is  not 
void,  but  merely  voidable.  Being  merely  voidable,  it  is 
capable  of  ratification  by  him  when  he  becomes  of  age.^ 

Sec.  8.  MINOR'S  LIABILITY  FOR  NECESSARIES.  A 
minor  is  liable  for  the  reasonable  value  of  necessaries  pur- 
chased by  him  upon  his  credit  and  actually  supplied  him. 

The  law  gives  a  minor  the  right  to  elect  whether  he 
shall  be  bound  for  all  contracts  made  by  him  except  his 
executed  contracts  for  necessaries.  If  a  minor  could 
not  render  himself  absolutely  liable  for  the  things  which 
are  supplied  to  him  as  actual  needs,  he  might  be  com- 
pelled to  go  in  want. 

He  is  not  bound  to  pay  what  he  may  have  promised, 
but  only  the  reasonable  worth  of  the  thing  supplied,  that 
is  to  say,  the  market  or  real  value.  Thus,  if  he  purchases 
a  suit  of  clothes  reasonably  worth  the  sum  of  fifteen 
dollars,  and  gives  his  promissory  note  for  thirty  dollars, 
he  may  elect  not  to  be  bound  upon  the  note,  and  fifteen 
dollars  would  be  the  measure  of  the  seller's  damage. 

His  liability  has  been  said  to  be  not  strictly  con- 
tractual, as  it  is  impos<ld  upon  him  by  law,  irrespective 
of  his  actual  promise.  "Its  real  foundation  is  an  obliga- 
tion which  the  law  imposes  on  the  infant  to  make  a  fair 
payment  in  respect  to  needs  satisfied."  ^  But  it  is  of  the 
nature  of  contract  in  this  sense  that  the  minor  gets  the 
benefit  through  agreement,  and  no  harm  is  done  to  think 
of  it  as  a  true  contract  if  we  remember  simply  that  the 

3.  McDonald  v.  Spring  Valley,  285  111.  52;  Cole  v.  Pennoyer, 
14  111.  158. 

4.  Coursolle  v.  Weyerhauser,  69  Minn.  328. 

5.  Nash  V.  Wyman  (1908),  2  K.  B.  i. 


American  Commercial  Law.  75 

state  in  its  regard  for  the  welfare  of  the  minor  protects 
him  against  his  unreasonable  promises,  and  also  that  an 
executory  contract  even  for  necessaries  is  not  enforce- 
able  against  a  minor. 

Sec.  9.  WHAT  ARE  NECESSARIES?  Necessaries  are 
advantages  supplied  to  a  person  under  age  which  are  requisite 
to  his  physical  well-being,  and  common  school  education,  and 
with  which  he  is  not  already  supplied  by  parent  or  guardian, 
and  which  are  suitable  to  his  station  in  life. 

(a)     Kind  of  advantages  that  may  constitute 
necessaries. 

A  comprehensive  definition  of  necessaries  in  general 
terms  is  difficult.  The  term  does  not  signify  that  a  thing 
be  absolutely  indispensable  to  the  physical  well-being 
of  the  minor.  It  is  not  necessary  that  he  be  saved  from 
actual  hunger  or  exposure.^  Yet  it  can  never  be  a  mere 
luxury.  A  necessary  will  fall  under  some  such  head  as 
food,  lodging,  apparel,  medicine  and  surgery  (or  other 
health  requirement),  academic  instruction  and  working 
tools  when  the  minor  makes  his  own  living.  These  head- 
ings are  not  absolutely  exhaustive,  yet  they  are  nearly  so. 
Let  us  further  consider  each  of  them. 

Food,  Lodging  and  Apparel.  Here  is  no  difficulty  as 
to  the  nature  of  the  supply.  Other  questions,  however, 
may  arise,  as  indicated  further  in  this  Section. 

Medicine  and  Surgery  (or  Other  Health  Requirement). 
Under  this  heading  things  which  would  not  ordinarily  be 
necessaries  may  be  so  considered. 

6.  Strong  V.  Foote,  42  Conn.  203. 


76  The  Law  of  Contracts. 

Example  4.  A  physician  orders  horse  riding  as  a 
means  of  health  for  a  minor  in  comfortable  circumstances. 
The  minor  is  liable  for  the  purchase  of  the  horse  bought 
for  this  purpose."^ 

Example  5.  A  dentist  renders  dental  services  to  a 
minor  and  sends  a  reasonable  bill.    The  minor  must  pay.^ 

Academic  Instruction.  A  common  school  education  is 
classed  as  necessary  and  so  is  an  education  for  a  trade. 

Example  6.  "A"  learns  the  trade  of  pattern  making 
and  promises  to  pay  his  instructor  a  sum  of  money  for 
teaching  him.     He  is  liable  on  his  contract.^ 

A  college  education  has  been  held,  however,  not  to  be 
a  necessary.^^     This  is  a  rule  of  doubtful  wisdom. 

Working  Tools.  To  a  minor  in  trade,  working  tools 
are  properly  classed  as  necessaries,  but  even  if  making 
his  own  living,  his  purchase  of  a  business  is  voidable,  as 
he  therefore  risks  his  fortune. 

Example  7.  A  minor  who  has  learned  the  trade  of  a 
barber,  buys  a  barber-shop  business  including  the  usual 
fixtures  and  supplies.  He  may  avoid  the  contract  if  he 
wishes ;  but  he  would  be  liable  if  he  purchased  the  usual 
number  of  implements  necessary  to  enable  him  to  pursue 
his  trade. ^^ 

7.  McKanna  v.   Merry,  61    111.    177. 

8.  Strong  v.  Foote,  42  Conn.  203. 

9.  Pardey  v.  Amer.  Ship  Windlass  Co.,  20  R.  I.  147. 

10.  Middlebury  Coll.  v.  Chandler,  16  Vt.  683. 

11.  Ryan  v.  Smith,  165  Miss.  303. 


American  Commercial  Law.  tj 

(b)  Station  in  life  as  factor. 

The  station  in  life  of  the  minor  involved  is  an  item 
in  determining  whether  the  article  in  question  is  neces- 
sary. What  is  necessary  to  the  son  of  a  millionaire  may 
not  be  necessary  to  a  boy  whose  family  are  in  poor  cir- 
cumstances. And  yet,  in  any  case,  the  thing  supplied 
must  not  be  a  mere  luxury.  "Suppose  the  son  of  the 
richest  man  in  the  kingdom  to  be  supplied  with  diamonds 
and  race  horses."  ^^  These  could  not  be  considered  nec- 
essaries. So  it  has  been  held  that  expensive  suppers 
given  by  a  wealthy  young  man  to  his  friends,  could  not 
be  considered  necessaries.  So  an  automobile  or  bicycle 
could  not  constitute  a  necessary  except  under  very  pecu- 
liar circumstances.  For,  no  matter  what  one's  station  in 
life,  or  how  highly  pampered  its  occupant  has  been,  a 
thing  is  not  a  necessary  unless  referable  to  some  such 
heading  as  indicated.  The  position  of  the  youth  is  to  be 
taken  into  account  more  to  determine  upon  the  grade 
of  a  thing  ordered,  than  the  kind  of  a  thing  ordered.  The 
son' of  the  poor  man  and  the  son  of  the  rich  man  both 
need  overcoats,  if  not  supplied.  But  the  former  cannot 
bind  himself  to  pay  for  such  an  expensive  one  as  the 
latter;  but  neither  the  son  of  a  rich  man  nor  the  son  of 
a  poor  man  needs  automobiles,  race  horses,  club  mem- 
berships, theater  tickets,  etc. 

(c)  Minor  already  supplied. 

Suppose  that  the  needs  of  the  minor  are  already  abun- 
dantly suppHed,  is  that  which  he  purchases  necessary? 
If  so,  how  is  the  merchant  to  know  and  to  protect  him- 
self?    The  rule  is  that  in  determining  whether  a  thing 

12.  Wharton  v.  McKenzie,  5  Q.  B.  606. 


78  The  Law  of  Contracts. 

supplied  is  a  necessary,  the  actual  needs  of  the  minor 
with  respect  to  that  class  of  necessaries,  must  be  con- 
sidered, and  if  he  already  has  a  sufficient  supply,  the 
thing  in  question  is  not  a  necessary.  The  person  dealing 
with  the  minor  must  take  the  risk. 

Example  8.  Nash,  a  tailor,  supplied  Inman,  a  fresh- 
man at  college  and  a  minor,  during  his  school  year  with 
a  quantity  of  clothes,  including  eleven  fancy  waistcoats. 
Inman  was  already  adequately  supplied  with  clothing  ac- 
cording to  his  station  in  life.  Held,  Nash  could  not 
maintain  a  suit  for  the  price.^^ 

(d)     Necessaries  must  be  actually  supplied. 

The  minor  is  not  liable  upon  his  executory  contract  for 
necessaries. 

Example  p.  A  minor,  being  in  college,  rents  a  room 
for  the  entire  school  year.  He  gives  up  the  room  after 
a  short  time  and  the  owner  cannot  rent  it  for  the  balance 
of  the  year.  Held,  that  the  minor  is  not  liable,  conced- 
ing that  if  he  had  occupied  the  room,  he  would  have  been 
liable.14 

Sec.  10.  DISAFFIRMANCE  OF  MINOR'S  VOIDABLE 
CONTRACTS.  A  minor  has  the  right  to  disaffirm  any  con- 
tract except  for  necessaries  made  by  him  during  minority,  at 
any  time  during  minority  and  at  any  time  after  majority  un- 
less he  has  ratified  after  majority.  An  exception  is  of  his 
deeds  to  real  estate  which  he  can  disaffirm  only  after  attain- 
ing his  majority.  Upon  disaffirmance  he  must  restore  what 
he  has  received  if  he  still  has  it;  but  his  right  to  disaffirm  is 

13.  Nash  V.  Inman  (1908),  2  K.  B.  i. 

14.  Gregory  v.  Lee,  64  Conn.  407. 


American  Commercial  Law.  79 

not  barred  by  his  inability  to  place  the  other  party  in  statu 
quo.  If,  after  becoming  of  age,  he  ratifies  a  contract  made 
during  his  minority,  it  becomes  binding,  upon  him. 

(a)     Right  to  disaffirm. 

We  have  seen  that  contracts  made  during  minority 
are  voidable,  unless  they  are  for  necessaries  actually  sup- 
plied. In  this  Section  we  will  discuss  the  rules  govern- 
ing disaffirmance. 

(b)     Time  of  disaffirmance. 

A  contract,  whether  executed  or  executory,  may  be 
disaffirmed  by  a  minor  at  any  time  during  minority ;  and 
may  be  disaffirmed  at  any  time  after  majority  unless, 
and  until  the  minor  ratifies  after  majority.  His  deeds 
to  real  estate,  however,  he  cannot  disaffirm  until  he  ar- 
rives at  age.     See  below  for  further  discussion. 

(c)     Conditions  of  disaffirmance. 

The  rule  is  that  a  minor  can  disaffirm  any  voidable 
contract,  whether  executed  or  executory  upon  giving  back 
the  benefits  received  thereunder  if  he  still  has  them,  but 
the  fact  that  such  benefits  are  injured,  lessened  or  gone, 
through  willful  dissipation,  negligence  or  accident,  does 
not  destroy  the  minor's  right  to  disaffirm. ^^ 

Example  10.  Hauser  brought  a  suit  against  the  Marmon 
Company  to  recover  back  $450.00  paid  by  him  while  a 
minor,  on  a  $600.00  automobile.  The  automobile  has 
been  used  by  Hauser  and  has  deteriorated  in  value.  Held, 

15.  Wuller  V.  Chuse  Groc.  Co.,  241  111.  398. 


8o  The  Law  of  Contracts. 

that  upon  restoration  of  the  machine,  the  plaintiff  can 
recover  the  $450.00.^® 

(d)     Disaffirmance  of  minor's  deeds  to  real  estate. 

The  minor  cannot  disaffirm  his  deeds  to  real  estate 
until  after  he  becomes  of  age,  and  then  he  must  disaffirm 
them  within  a  reasonable  time  by  some  overt  act  of  equal 
dignity  with  his  deed,  as  by  bringing  suit,  or  deeding  to 
another,  or  by  making  entry.  In  some  states  the  time  is 
made  specific  by  Statute,  as,  say,  three  years. 

(e)     Ratification. 

A  minor  cannot  ratify  during  minority.  After  at- 
taining his  majority,  he  may  ratify  expressly  or  by  his 
acts.  His  mere  failure  to  disaffirm  is  not  in  itself  rati- 
fication unless  he  is  dealing  with  the  benefits  of  the  con- 
tract. If  he  still  has  benefits  under  the  contract,  he  can- 
not retain  them,  yet  he  has  a  reasonable  time  to  disaffirm. 
Upon  ratification,  the  contract  becomes  absolutely  bind- 
ing upon  him,  that  is,  his  right  to  disaffirm  has  gone  for- 
ever. 

Example  11.  A  minor  enters  into  a  contract  to  pur- 
chase land,  paying  $1,000.00  cash,  balance  in  install- 
ments. He  made  several  payments  before  coming  of 
age.  He  became  of  age  in  October,  and  made  a  payment 
in  November  and  another  in  December.  He  then  hired 
a  lawyer  and  tendered  back  the  contract  and  a  quit  claim 
deed  and  demanded  his  money  back.  Held,  that  the  con- 
tract, while  voidable  by  him,  before  or  after  age,  had 

16.  Hauser  v.  Marmon  Co.,  208  111.  App,  171. 


American  Commercial  Law.  8i 

been  ratified  by  his  payments  made  under  it  and  thereby 
became  binding.*'' 

Sec.  11.  TORTIOUS  LIABILITY  OF  MINORS  IN 
CASES  INVOLVING  CONTRACTS.  A  minor  is  respon- 
sible for  his  torts.  If  in  connection  with  some  voidable  con- 
tract made  by  him  he  commits  a  wilful  and  independent  tort, 
he  may  be  held  liable  for  the  damiages  caused  by  the  tort,  but 
if  the  wrong  alleged  consists  in  a  mere  breach  of  his  contract, 
he  cannot  be  rendered  liable  by  calling  his  default  a  tort. 

A  minor  is  liable  for  his  torts ;  his  minority  is  no  pro- 
tection. If,  for  instance,  he  deliberately  breaks  a  window, 
a  judgment  may  be  had  against  him  for  the  damages 
caused.  Cases  arise  in  which  a  minor  commits  a  wrong 
tortious  in  its  nature,  about  the  time  of  or  in  coimec- 
tion  with  a  contract  made  by  him,  and  when  sued  in 
tort  responds  that  his  act  was  at  most  a  mere  breach  of 
contract  and  not  a  tort.  Thus,  if  he  should  hire  a  horse  to 
drive  to  an  adjoining  town  and  in  his  inexperience  should 
drive  it  so  immoderately  as  to  injure  it,  the  injury  not 
being  wilful,  he  can  reply  if  sued  in  tort  for  negligence 
or  conversion,  that  the  other  party  is  attempting  to  de- 
prive him  of  a  defense  to  a  charge  of  breach  of  con- 
tract, by  simply  calling  his  breach  a  tort,  and  this  can- 
not be  permitted.  But  if  a  minor  takes  advantage  of  a 
contract  to  commit  a  wilful  tort  he  is  liable  notwith- 
standing he  would  not  have  been  able  to  commit  it  if  he 
had  not  entered  into  the  contract,  as  where  he  maliciously 
beats  a  horse  hired  by  him,  or  drives  it  further  than  his 
contract  permitted.*^  Also  if  in  order  to  hire  the  horse 
he  misrepresented  himself  to  be  of  age,  he  has  committed 
the  tort  of  deceit  and  is  liable.'*^ 

17.  Rubin  V.   Strandberg.  288  111.  64. 

18.  Towne  v.  Wiley,  23  Vt.  355. 

19.  Fitts  V.  Hall,  9  N.  H.  441. 

Bays — 6 


82  The  Law  of  Contracts. 

C.    Other  Parties  Under  Disability. 

Sec.  12.  MARRIED  WOMEN.  By  the  common  law  a 
married  woman  had  no  capacity  to  "contract  even  for  her  nec- 
essaries, although  she  had  an  implied  authority  to  bind  her 
husband  for  her  necessaries,  which  he  could  not  by  any  act 
on  his  part  deprive  her  of.  By  modern  statutes,  her  disability 
to  contract  has  been  largely  removed. 

An  unmarried  woman,  or  feme  sole,  had  capacity  to 
contract,  but  a  married  woman  had  no  power  to  con- 
tract. Courts  of  equity,  it  is  true,  allowed  property  to 
be  settled  upon  her  for  her  sole  use  and  developed  the 
doctrine  that  such  separate  estate  could  be  charged  with 
debts  contracted  by  her,  but  she  could  not  be  sued  per- 
sonally. By  modern  statutes,  married  women  may  con- 
tract freely. 

Sec.  13.  INSANE  PERSONS.  Contracts  by  an  insane 
person,  except  for  his  necessaries,  are  voidable  if  he  restore 
the  consideration;  or  in  many  jurisdictions  by  statute  if  he 
has  been  legally  declared  insane  and  a  conservator  appointed, 
his  contracts  are  voidable  at  all  events,  or  void. 

The  law  as  to  contracts  with  insane  persons  varies 
somewhat  in  the  different  states.  Statutes  quite  gener- 
ally govern  the  matter.  Many  of  these  declare  that  the 
contracts  of  an  insane  person,  whose  insanity  has  been 
adjudged  by  the  law,  and  is  a  matter  of  record,  and  over 
whom  a  conservator  or  guardian  has  been  appointed,  are 
voidable  at  the  option  of  the  insane  person  or  such  con- 
servator, but  are  fully  binding  on  the  other.  Before  such 
adjudication,  a  contract  with  an  insane  person  is  void- 
able by  the  insane  person,  unless  it  is  for  necessaries. 
If  the  other  person  knew  of  the  insanity  he  is  only  en- 


American  Commercial  Law.  83 

titled  to  such  of  the  consideration  as  the  insane  person 
has  not  parted  with.  But  if  the  insanity  was  not  known, 
the  insane  person  on  avoidance  must  place  the  other 
party  in  statu  quo. 

Sec.  14.  DRUNKEN  PERSONS.  A  drunken  person  is 
liable  upon  his  contract  unless  the  drunkenness  is  so  great 
as  to  drown  reason,  judgment,  and  memory,  or  vmless  he  was 
made  dnuik  that  he  might  be  imposed  upon. 

The  defense  of  drunkenness  is  not  regarded  with  fa- 
vor, unless  it  has  induced  a  temporary  insanity  which  ob- 
scures reason,  judgment,  and  memory,  or  unless  it  was 
produced  as  a  part  of  a  scheme  to  defraud  on  the  part 
of  the  other  party. 20 

Sec.  15.  ALIENS.  An  alien  has  power  to  contract  when 
his  country  is  at  peace  with  this  country.  But  during  hos- 
tilities he  may  not  enter  into  any  contract  with  citizens  of 
this  country.  Rights  acquired  prior  to  the  declaration  of  war 
are  suspended,  but  not  annulled,  and  may  be  enforced  in  our 
courts  when  peace  is  resumed.  An  alien  enemy  may  be  sued 
in  our  courts  and  when  sued  may  make  his  defense. 

Alien  enemy  acts  are  passed  in  time  of  war  specifically 
governing  the  rights  gind  disabilities  of  alien  enemies. 

Sec.  16.  CORPORATIONS.  A  corporation's  capacity  to 
contract  is  determined  by  its  charter.  Generally  speaking  it 
may  make  contracts  that  are  fairly  intended  to  further  its 
legitimate  corporate  purposes. 

A  full  discussion  of  the  capacity  of  a  corporation  to 
contract  would  be  out  of  place  here.    That  must  be  sought 

20.  Martin  v.  Harsh,  231  111.  384. 


84  The  Law  of  Contracts. 

in  some  treatise  upon  the  law  of  corporations.  See  the 
Law  of  Corporations  in  this  series.  We  may  say  gen- 
erally that  a  corporation  has  the  power  to  make  such 
contracts  as  reasonably  tend  to  the  furtherance  of  its 
legitimate  business,  but  no  others. 


CHAPTER  3. 

OFFER  AND  ACCEPTANCE, 
(1)  WHAT  CONSTITUTES. 

A.    Necessity  of  Offer  and  Acceptance. 

Sec.  17.  NO  CONTRACT  WITHOUT  OFFER  AND  AC- 
CEPTANCE. In  every  contract,  there  must  be  an  offer  and 
an  acceptance  thereof. 

Offer  and  acceptance  are  essential  to  contract.  That 
is,  there  must  be,  as  the  courts  say,  a  meeting  of  the 
minds.  It  is  true  that  in  some  instances  we  may  hold 
parties  to  a  contract  although  their  minds  have  not  ab- 
solutely met  on  every  point,  as  where  one  party  has  not 
read  his  contract.  And  some  educators  have  criticized 
the  statement  that  there  must  be  a  "meeting  of  minds." 
But  the  criticism  does  not  seem  sound  from  a  practical 
standpoint.  It  is  true,  as  a  general  proposition,  that  in 
every  contract  there  must  be  an  offer,  complete  enough 
to  result  in  obligation,  either  by  its  express  terms  or  by 
its  implications,  and  an  acceptance  of  that  offer  consisting 
in  an  agreement  with  it  on  every  term.  If,  in  any  par- 
ticular case,  we  hold  a  person  to  a  term  to  which  he 
claims  he  has  not  in  reality  assented,  as  for  instance, 
that  he  was  ignorant  of  a  custom  which  we  must  charge 
him  with  as  entering  into  the  contract,  or  because  he  has 
not  read  the  contract,  we  dO'  so  upon  the  theory  that  he 
must  be  charged  with  the  knowledge  of  those  terms, 
whether  in  fact  he  knew  them  or  not.     This  may  be  a 

85 


86  The  Law  of  Contracts. 

fiction,  but  it  is  a  fiction  necessary  to  any  reasonable 
and  workable  rule.  In  the  same  way  we  are  not  con- 
cerned with  a  person's  secret  thoughts,  where  he  claims 
they  were  different  from  what  the  party  witih  whom  he 
was  contracting  was  entitled  to  believe  them  from  the 
words  used  or  acts  done  by  him. 

With  these  explanations  we  may  say  that  the  rule  is 
that  in  every  contract,  one  party  must  make  a  definite 
offer,  intended  as  such  when  judged  by  usual  standards 
of  interpretation,  complete  and  definite  enough  to  be  en- 
forceable against  him  if  accepted,  and  the  party  to  whom 
the  offer  is  made  must  accept  the  offer  as  made,  that  is, 
without  quahfications,  (if  he  does  qualify  it,  he  thereby 
makes  a  counter  offer  which  the  original  offeror  may 
accept). 

The  party  who  makes  an  offer  is  called  an  "Offeror," 
the  party  to  Whom  it  is  made  is  called  the  "Offeree."  An 
offeree  may  be,  (and  usually  is),  a  definite  person  or 
persons,  or  may  be  any  person  or  persons  in  a  class,  as 
an  offer  to  anyone  who  will  secure  a  certain  number  of 
subscriptions  to  a  newspaper. 

B.    What  Constitutes  Offer. 

Sec.  18.  NO  OFFER  AND  ACCEPTANCE  BECAUSE 
NO  COMMUNICATION  TO  OFFEREE.  There  is  no  con- 
tract where  the  offer  is  not  communicated  to  the  offeree. 

Cases  occur  in  which  an  offer  is  made,  and  then  the 
person  who  would  have  accepted  the  offer  does  the  very 
thing  that  the  offer  calls  for  yet  without  knowledge  of 
the  offer;  there  is  no  contract. 

Example  12.  A  offers  a  public  reward  to  any  one  who 
will  furnish  information  as  to  the  whereabouts  of  an  ac- 


American  Commercial  Law.  87 

cused  person.  B,  ignorant  of  the  reward,  furnishes  him 
such  information.  He  is  not  entitled  to  the  reward,  as 
he  did  not  act  in  response  thereto,  what  he  did  he  would 
have  done  had  there  been  no  reward. ^^ 

Sec.  19.  NO  OFFER  BECAUSE  OFFER  NOT  UT- 
TERED, Though  an  offer  is  framed,  offeree  cannot  accept 
it  if  it  lacks  utterance  or  delivery  to  him. 

Clearly  an  offer  is  not  legally  made,  even  if  put  in 
final  form,  unless  it  is  uttered  to  or  delivered  to  offeree. 
We  all  know  of  cases  in  which  letters  are  written,  and 
even  signed,  but  not  sent.  The  final  act  of  delivery  is 
essential  to  the  offer,  otherwise  it  is  not  an  offer. 

Example  13.  A  writes  a  letter  to  the  janitor  of  the 
building,  explaining  that  he  has  lost  a  ring  about  the 
premises  and  offering  a  certain  reward  to  the  janitor  if 
he  will  find  the  ring.  He  signs  this  letter  and  leaves  it 
on  his  desk  intending  to  think  it  over  before  he  delivers 
it  in  the  morning.  The  janitor  sees  it  on  the  desk  and 
reads  it.  Whether  this  is  an  offer  would  depend  on 
whether  the  letter  were  left  in  such  a  way  that  the  jan- 
itor would  be  entitled  to  suppose  it  was  meant  to  be 
read  by  him. 

Example  14.  A  tells  B  he  will  give  C  $200.00  for  his 
horse  Dick.  B  tells  this  to  C.  Here  is  no  offer  unless  A 
intended  B  to  tell  C,  or  unless  B  were  C's  agent  for  that 
purpose. 

Example  15.  The  Board  of  Directors  of  the  X  Cor- 
poration vote  to  offer  a  reward  for  certain  information. 

21.  Broadnax  v.  Ledbetter,  100  Tex.  375. 


88  The  Law  of  Contracts. 

The  X  Corporation  does  not,  however,  offer  the  reward. 
A  learns  of  the  vote  and  furnishes  the  information. 
There  is  no  contract,  for  the  offer  lacked  delivery.^^ 

Sec.  20.  PRELIMINARY  ANNOUNCEMENTS  IN- 
TENDED TO  SECURE  OFFERS  DISTINGUISHED 
FROM  OFFERS.  Announcements  made  in  a  preliminary 
way,  in  the  nature  of  advertisements  meant  to  attract  trade 
are  not  offers  and  cannot  be  accepted.  Responses  to  them 
are  the  offers  which  the  origfinal  announcer  can  accept  or  re- 
ject as  he  chooses. 

Cases  frequently  arise  in  which  a  person  claims  that 
a  contract  is  complete  because  he  has  ordered  goods  or 
taken  some  action  in  response  to  a  proposition  which  the 
proposer  claims  was  not  intended  as  an  oft"er,  but  as  a 
mere  advertisement  or  preliminary  proposition  intended 
to  invite  offers.  Whether  such  a  proposition  is  an  offer 
or  not,  depends  of  course  on  the  construction  that  the 
alleged  acceptor  would  be  entitled  to  place  on  it,  accord- 
ing to  reasonable  rules  of  interpretation. 

Example  i6.  The  Johnson  Company,  a  manufacturer 
of  firearms,  selling  only  to  jobbers,  sent  out  a  circular 
letter  to  its  prospective  customers,  setting  forth  the  terms 
upon  which  revolvers  would  be  sold  to  the  jobbing  trade. 
Ward,  having  received  the  letter,  sent  in  an  order  for 
revolvers.  This  is  not  a  contract  without  acceptance  by 
The  Johnson  Company,  as  the  circular  letter  was  not  an 
ofrer.23 

It  is  very  clear  that  circular  letters  are  not  intended 
as  offers,  even  if  they  contain  the  phrase,  "We  offer," 

22.  See  Sears  v.  Kings  Co.  El.  Co.,  9  L.  R.  A.  (Mass.),  117. 

23.  Montgomery  Ward  &  Co.  v.  Johnson,  209  Mass.  89. 


American  Commercial  Law.  89 

and  even  if  there  is  no  reservation  of  right  to  reject.  It 
is  wise  business  policy  to  include  in  any  such  letter  a 
statement  that  the  right  to  reject  orders  is  reserved, 
for  that  may  save  a  lawsuit,  but  such  letters  are  clearly 
not  offers. 

If  the  letter  is  by  one  person  to  another,  it  may  still 
have  the  nature  of  a  circular  letter,  even  though  of  a 
definite  nature,  if,  by  its  terminology  it  suggests  that 
it  is  such  a  letter  as  may  have  been  sent  generally  to 
other  customers,  whether  in  fact  it  has  been  or  not. 
Thus,  a  statement  by  a  merchant  that  he  has  on  hand  a 
quantity  of  material  which  he  is  offering  at  certain  prices 
and  on  certain  terms  is  not  an  offer. 

Example  i/.  Harsh  wrote  Nebraska  Seed  Company, 
"I  have  about  1800  bushels  of  millet  seed,  of  which  I 
am  mailing  you  a  sample.  This  millet  is  recleaned  and 
was  grown  on  sod  and  is  good  seed.  I  want  $2.25  per 
cwt.  for  this  seed,  f.  o.  b.  Lowell."  Held,  not  an  offer 
and  an  attempted  acceptance  would  not  complete  a  con- 
tract. The  court  said,  "The  language  used  is  general 
and  such  as  may  be  used  in  an  advertisement  or  circular 
addressed  generally  to  those  engaged  in  the  seed  busi- 
ness, and  is  not  an  offer  by  which  he  may  be  bound,  if 
accepted,  by  any  and  all  persons  addressed."  ^4 

It  is  very  clear,  however,  that  there  may  be  cases  of 
this  sort  where  it  is  very  hard  to  draw  the  line.  It  took 
a  Supreme  Court  decision  to  convince  the  loser  in  the 
above  example,  and  the  winner  would  have  saved  his 
trouble  if  he  had  put  a  reservation  in  the  letter.  But, 
of  course,  if  one  really  intends  an  offer,  he  would  not 
care  to  put  in  such  reservation. 

24.  Harsh  v.  Nebraska  Seed  Co.,  L.  R.  A.  1915  F.  824  (Nebr.). 


90  The  Law  of  Contracts. 

On  the  other  hand,  if  one  party  makes  a  definite  prop- 
osition to  another  in  terms  the  reasonable  construction 
of  which  indicates  an  offer,  an  acceptance  thereof  com- 
pletes the  contract  and  the  offeror  is  bound. 

Advertisements  in  public  newspapers  or  by  public  an- 
nouncement of  any  sort  may  or  may  not  be  offers  ac- 
cording to  how  the  same  are  worded.  Thus  advertise- 
ments of  rewards  are  clearly  offers  to  those  who  will  do 
what  is  called  for,  but  advertisements  of  goods  for  sale 
or  of  sales  to  be  held  are  not  offers. 

Catalogues  are  generally  qot  offers,  as  catalogues  sent 
out  by  mail  order  houses  and  the  like.  They  are  in  the 
nature  of  circular  letters.  But  catalogues  may  contain 
offers.  So  in  fact  may  circular  letters,  if  that  is  the  rea- 
sonable construction  of  them,  as  where  they  offer  a  re- 
ward.25 

Sec.  21.  OFFER  INDEFINITE.  If  the  proposition  is 
too  indefinite  to  be  enforceable,  if  accepted  it  is  clearly  not  an 
offer,  even  though  intended  as  such. 

A  proposition,  although  intended  as  such,  may  be 
either  too  indefinite  or  too  incomplete  to  constitute  an 
offer.  An  offer  must  be  definite  enough  so  that  a  con- 
tract may  be  made  out  of  it  by  the  mere  reply,  "I  ac- 
cept." In  other  words  it  must  be  definite  enough  and 
complete  enough  to  be  enforceable. 

Example  i8.  A  offers  B  lOO  acres  of  land,  if  B  will 
work  for  him  until  B's  marriage.  B  accepts  and  per- 
forms. A's  promise  is  unenforceable  because  "loo  acres 
of  land"  is  too  indefinite.  It  may  mean  fertile  or  barren 
land,  improved  or  unimproved  land,  valuable  or  poor 
land.2o 

25.  Bank  v.  Griffin,  66  111.  Ap.  577. 

26.  Sherman  v.  Kitsmiller,  17  S.  &  R.   (Pa.)  45. 


American  Commercial  Law.  91 

Example  19.  A  promise  by  an  oil  dealer  to  sell  oil 
on  favorable  terms  so  that  the  buyer  could  compete  suc- 
cessfully with  other  parties  selling  in  the  same  territory 
is  too  indefinite  to  constitute  an  offer.^'^ 

Sec.  22.  PROPOSITION  INCOMPLETE.  If  the  propo- 
sition, although  definite  enough  to  be  an  offer,  so  far  as 
stated,  is  incomplete  in  its  terms,  it  is  not  an  offer;  but  where 
by  fair  interpretation  the  terms  zdleged  to  be  lacking  were 
meant  to  be  implied,  the  offer  may  thereby  be  rendered  com- 
plete. 

The  alleged  offer  must  be  of  sufficient  completeness 
to  constitute  a  valid  offer.  This  is  of  course  very  closely 
connected  with  the  subject  matter  of  the  last  section,  but 
here  we  refer  to  those  cases  in  which  the  offer  as  far 
as  it  goes  is  definite  enough,  but  it  omits  details  that 
are  essential  to  make  it  complete,  as  an  offer  to  sell  a 
certain  farm,  no  price  being  stated.  Clearly  there  is 
no  offer  here  that  an  acceptance  can  turn  into  a  con- 
tract. 

But  another  consideration  presents  itself  in  these  cases. 
It  is  a  ,very  common  occurrence  to  have  terms'  included 
in  an  offer  by  implication,  provided,  the  implication  is 
a  reasonable  one  to  make  under  the  circumstances.  In 
the  case  supposed  above  of  the  sale  of  the  farm  no  terms 
as  to  price  could  be  implied,  but  if  one  orders  goods 
stating  no  price  and  they  have  a  market  value,  it  is  to 
be  assumed  that  he  intends  to  pay  the  prevailing  prices. 
By  reasonable  construction,  the  price  is  a  part  of  his 
offer. 

Contracts  which  may  be  reduced  to  certainty  by  refer- 
ence to  events  stipulated  in  the  contract  are  good,  as  sales 
for  future  market  prices. 

27.  Marble  v.  Standard  Oil  Co.,  169  Mass.  553. 


92  The  Law  of  Contracts. 

C.    Duration  of  Offer. 

Sec.  23.  DURATION  OF  OFFER.  An  offer  remains 
open  for  acceptance:  (1)  The  time  stated;  or  (2)  if  no  time 
is  stated,  a  reasonable  time;  provided  in  either  case  it  is  not 
sooner  withdrawn. 

An  offer  being  made,  how  long  will  it  last?  Within 
what  time  must  the  offeree  act  upon  it  ?  The  offeror  may 
in  making  the  offer  expressly  stipulate  how  long  it  shall 
remain  open,  but  more  than  likely  he  will  say  nothing 
about  it.  If  he  sets  the  time,  that  will  of  course  gov- 
ern ;  if  he  does  not  set  the  time,  then  we  are  forced  to 
the  general  statement  that  an  offer  will  remain  open  a 
reasonable  length  of  time. 

In  either  case  the  offeror  may  withdraw  his  offer  un- 
less he  has  contracted  to  keep  the  offer  open.  See  Sec- 
tion 27  below  for  further  discussion.  If  no  definite  time 
is  stated,  what  is  a  reasonable  time?  Is  it  one  day,  one 
week,  or  one  month?  Clearly  this  depends  entirely  on 
the  circumstances,  as  the  nature  of  the  subject  matter, 
the  locality,  the  previous  dealings  of  the  parties,  prevail- 
ing customs. 

Example  20.  Kempner  offers  to  sell  land  to  Cohn  by 
letter  reaching  Cohn  February  2.  On  February  7th  Cohn 
accepted  the  offer  by  letter  reaching  Kempner  February 
9th.  Seller  lived  in  Hot  Springs  and  buyer  in  Little 
Rock,  Arkansas.  Land  was  a  lot  in  Little  Rock.  Jury 
found  time  not  unreasonable. ^^ 

Example  21.  An  offer  reaching  offerer  by  telegram 
Monday  morning  between  8  o'clock  and  Q  o'clock  offer- 
ing to  sell  oil  which  at  the  time  was  rapidly  fluctuating 

28.  Kempner  v.  Cohn,  47  Ark.  519. 


American  Commercial  Law.  93 

in  market  price  was  attempted  to  be  accepted  by  telegram 
sent  out  Tuesday  morning  at  8:53  A,  M.  The  court 
held  the  time  to  be  unreasonable.  29 

It  is  apparent  from  these  considerations  that  it  is  an 
impossible  task  to  lay  down  a  rule  of  yardstick  char- 
acter which  one  may  go  by.  The  jury  is  the  final  arbiter, 
subject  of  course  to  the  instructions  of  the  court.  The 
time  cannot  be  measured  off  by  the  clock  and  one  who 
accepts  after  some  delay  may  not  be  able  to  absolutely 
know  whether  he  has  a  good  case  or  not,  and  his  lawyer 
may  not  be  able  to  tell  him. 

No  matter  when  the  offer  would  expire  by  mere  lapse 
of  time,  it  may  be  accepted  thereafter  if  the  offeror  still 
treats  it  as  being  in  force. 

Sec.  24.  TERMINATION  OF  OFFER  BY  REJEC- 
TION. A  rejection  of  an  offer  by  the  offeree  terminates  it. 
A  counter  offer  is  equivalent  to  a  rejection. 

If  the  offeree  positively  rejects  the  offer,  it  is  of  course 
within  the  offeror's  power  to  tell  him  that  the  offer  is 
no  longer  open,  but  he  may  not  think  to  do  that  and  may 
have  no  opportunity  to  do  so.  An  offeree  may  reject 
an  oft'er,  and  then  within  the  time  that  it  would  have 
remained  open  may  attempt  to  accept  it.  Must  the  of- 
feror honor  the  acceptance?  The  law  is  that  the  rejec- 
tion terminates  the  offer.  For  clearly,  if  A  offers  B 
goods  at  certain  prices,  and  B  replies  with  a  definite 
rejection,  A  ought  then  to  be  able  to  forget  all  about  B 
and  seek  another  buyer. 

A  counter  offer  is  regarded  as  a  rejection  and  there- 
fore also  terminates  the  offer. ^o 

29.  Minn.  Linseed  Oil  Co.  v.  Collier  White  Lead  Co.,  4  Dill. 
431  (Fed.  Cas.  No.  9635)  ;  17  Federal  Cases  447. 

30.  Shaw  V.  Ingram  Day  Lumber  Co.,  152  Ky.  329,  L.  R.  A.  1915 
D.  143. 


94  The  Law  of  Contracts. 

Sec.  25.  TERMINATION  OF  OFFER  BY  DESTRUC- 
TION OF  SUBJECT  MATTER.  If  the  offer  relates  to  defi- 
nite subject  matter,  and  such  subject  matter  is  destroyed 
prior  to  acceptance,  there  is  no  contract. 

If  A  offers  to  sell  a  certain  horse  to  B  and  the  horse 
dies  before  B  accepts,  there  is  no  contract.  If,  however, 
the  subject  matter  is  destroyed  out  of  which  A  intends 
to  perform,  but  he  may  perform  out  of  any  other  subject 
matter,  the  destruction  of  such  subject  matter  does  not 
terminate  the  offer. 

Sec.  26.  TERMINATION  BY  DEATH  OR  INSANITY 
OF  OFFEROR  OR  OFFEREE.  The  death  or  insanity  of 
offeror  or  offeree  before  acceptance  will  terminate  an  offer. 

Except  in  cases  of  a  consideration  to  keep  an  offer 
open,  death  of  the  offeror  before  acceptance,  or  his  in- 
sanity, will  cause  the  offer  to  lapse,^^  and  so  will  the  death 
or  insanity  of  the  offeree.^^ 

Sec.  27.  REVOCATION  OF  OFFER.  An  offer  may  be 
withdrawn  at  any  time,  unless  a  consideration  has  been  given 
to  keep  it  open;  but  the  attempted  revocation  must  actually 
reach  the  offeree  before  acceptance. 

An  offer  may  be  withdrawn  at  any  time,  even  if  the 
offeror  in  withdrawing  it  breaks  his  promise  to  keep  it 
open;  except  where  the  promisor  for  a  valid  considera- 
tion has  agreed  to  keep  it  open  (and  except  where  under 
seal  in  those  jurisdictions  which  still  adhere  to  the  law 
of  the  seal).  The  withdrawal  must  actually  reach  the 
offeree  to  be  effectual. 

31.  Beach  v.  M.  E.  Church,  96  111.  177. 

32.  Sutherland  v.  Parkins,  75  111.  338. 


American  Commercial  Law.  95 

Example  22.  A  mails  an  offer  to  B  on  Monday  which 
reaches  B  on  Tuesday.  B,  after  receipt  of  the  letter  on 
Tuesday,  mails  his  acceptance.  (This  completes  the  con- 
tract, see  Section  31,  post.^  Prior  to  B's  acceptance  on 
Tuesday,  A  wires  B  a  revocation  which  reaches  B  after 
B  has  deposited  his  letter.  The  revocation  is  ineffec- 
tive. ^^ 

Sec.  28.  CONTRACTS  TO  KEEP  OFFERS  OPEN.  A 
contract  to  keep  an  offer  open,  operates  to  prevent  its  with- 
drawal within  the  time  stated. 

As  we  have  seen,  an  offer  may  be  withdrawn  at  any 
time  before  acceptance,  no  matter  how  long  it  would 
have  otherwise  remained  open  and  although  the  promise 
to  keep  it  open  is  thereby  violated.  But  parties  may 
contract  that  an  offer  shall  remain  open,  as  they  may 
contract  almost  anything  else,  and  in  that  case,  retrac- 
tion amounts  to  a  breach  of  such  contract. 

Example  2^.  A  offers  to  sell  B  his  house  for 
$10,000.00.  B  is  undetermined.  A,  therefore,  at  B's 
request,  promises  to  keep  the  offer  open  for  ten  days, 
in  consideration  that  B  will  pay  him  $50.00  for  the  option. 
B  agrees.  A  has  no  right  to  revoke."  If  he  attempts  to 
do  so,  some  courts  look  upon  the  revocation  as  a  breach 
of  his  contract  not  to  revoke,  and  some  look  upon  it  as 
ineffectual,  leaving  the  offer  still  in  effect.  The  result 
is  substantially  the  same  under  either  theory. 

D.    The  Acceptance. 

Sec.  29.  WHAT  CONSTITUTES  ACCEPTANCE.  Ac- 
ceptance is  a  definite  manifestation  of  a  purpose  to  be  boxmd 

2i.  Kempner  v.  Cohn,  47  Ark.  519. 


96  The  Law  of  Contracts. 

according  to  the  terms  of  the  offer.  Therefore  there  is  no 
acceptance  where  there  is  doubt  or  difference  expressed  or 
except  in  unusual  cases  where  there  is  mere  silence.  Accept- 
ance may  be  by  promise  or  act  whichever  is  contemplated  by 
the  offer. 

We  have  seen  in  the  discussion  of  the  offer  that  the 
acceptance  completes  the  contract  and  is  therefore  irrev- 
ocable; that  it  must  be  in  the  terms  of  the  offer;  and  a 
few  questions  only  remain  for  our  discussion. 

Sec.  30.  ACCEPTANCE  BY  PROMISE  OR  ACT.  The 
acceptance  must  be  in  manner  and  form  as  contemplated  by 
the  offer  which  may  be  by  promise  or  by  act. 

One  may  accept  an  offer  by  a  promise  to  do  what  the 
offer  calls  for  if  that  is  the  manner  of  acceptance  con- 
templated by  the  offer,  but  if  the  offer  calls  for  the  do- 
ing of  an  act  by  way  of  acceptance  the  offer  could  not 
be  accepted  by  promising  to  do  the  act  in  the  future.  It 
would  be  no  objection  in  that  case  that  the  offeree  sig- 
nified that  he  did  accept;  and  in  all  cases  acceptance 
calls  for  notification  to  the  offeror  that  the  offeree  has 
accepted.    A  few  examples  will  elucidate  this  subject: 

Example  24.  A  in  June  makes  an  offer  to  B  consist- 
ing in  a  promise  by  A  to  sell  goods  for  the  fall  trade 
to  be  made  up  on  B's  order.  This  is  an  offer  clearly  to 
be  accepted  by  B's  promise  to  buy  such  goods.  The  con- 
tract when  accepted,  consists  in  mutual  promises.^* 

Example  2^.  A  offers  a  public  reward  to  any  person 
who  will  furnish  him  certain  information.     B  furnishes 

34.  Trademen's  Nat.  Bk.  v.  Curtis,  167  N.  Y.  194,  52  L.  R.  A. 
430. 


American  Commercial  Law.  97 

that  information.     In  this  case  B  accepts  the  offer  by 
doing  an  act.^^ 

Example  26.  A,  being-  about  to  go  to  Chicago  to  buy 
goods  at  wholesale,  takes  with  him  a  letter  of  credit  from 
B,  promising  to  guarantee  A's  credit  with  anyone  of 
whom  A  purchases  the  goods  up  to  a  certain  amount 
and  over  a  prescribed  period.  M  sells  A  goods  on  the 
strength  of  this  letter  and  M  accepts  this  offer  by  selling 
the  goods,  as  such  is  the  reasonable  interpretation  of  the 
letter,  but  M  must  notify  B  within  a  reasonable  time  that 
he  has  accepted  the  letter.^^ 

Exaimple  2'j.  A  sends  an  order  by  mail  to  the  M. 
Company,  ordering  goods  as  per  catalogue  prices.  The 
Company  accepts  this  offer  by  shipping  the  goods,  but 
must  notify  A,  so  that  he  may  know  of  the  acceptance.^'^ 

Sec.  31.  COMMUNICATION  OF  ACCEPTANCE. 
When  complete  the  acceptance  must  be  communicated  to  the 
offeror  or  his  agent  in  that  behalf,  except  in  cases  in  which 
the  offer  evidently  contemplates  communication  by  an  act 
without  previous  communication.  If  a  contract  is  made  by 
mail  or  telegraph  the  offer  is  not  complete  until  it  reaches 
the  sendee  or  his  agent  in  that  behalf,  but  the  acceptance  is 
complete  when  delivered  to  the  post  office  or  telegraph  com- 
pany, unless  the  offer  stipulates  otherwise;  provided  the  mail 
or  telegraph  in  the  specific  case  is  the  proper  method  of  com- 
munication, as  expressly  or  impliedly  authorized  by  the  offer. 

(a)     Communication  of  offer. 

We  have  discussed  this  principle  in  the  previous  sec- 
tion. 

35.  Elkins  v.  Bd.  of  County  Com'rs,  86  Kan.  305,  120  Pac.  542. 

36.  Wm.  Deering  &  Co.  v.  Mortell,  21  S.  D.  159,  no  N.  W.  86. 
2,7.  Main  v.  Tracj^  76  Ark.  371. 

Bays— 7  « 


98  The  Law  of  Contracts. 

(b)     Communication  to  agent. 

The  communication  of  the  acceptance  to  an  agent  of 
the  offeror  is  at  that  moment  a  communication  to  the 
offeror,  whether  in  fact  the  offeror  ever  receives  it  or 
not,  but  such  agent  would  have  to  have  actual  or  ap- 
parent authority  to  receive  the  offer.  The  fact  that  he 
was  an  agent  of  the  offeror  for  some  purposes  would 
not  necessarily  carry .  with  it  authority  to  receive  the 
acceptance  of  any  offer.  See  generally,  the  subject  of 
Agency. 

(c)     Communication  by  mail  or  telegraph. 

It  is  clearly  established  by  the  cases  that  if  the  accept- 
ance is  properly  made  either  by  mail  or  telegraph,  the 
contract  is  complete  when  the  acceptance  is  delivered  to 
the  postoffice  or  telegraph  company,  properly  addressed 
and  paid  for,  and  that  subsequent  delay  or  miscarriage 
will  not  defeat  the  contract.  This  has  been  supported 
on  various  theories,  a  favorite  one  being  that  the  post- 
office  or  telegraph  company  is  the  agent  of  the  offeror 
to  receive  the  acceptance,  which  according  to  the  prin- 
ciples stated  in  the  paragraph  next  above,  would  make 
the  contract  complete  at  that  time.  According  to  this 
rule,  an  attempted  revocation  of  the  acceptance  after  so 
made,  is  ineffectual  even  if  it  actually  reaches  the  of- 
feror before  the  acceptance  reaches  him.^^ 

(d)     When  acceptance  by  mail  or  telegraph  authorised. 

The  difficult  question  is  to  determine  when  the  ac- 
ceptance is  authorized  to  be  sent  by  mail  or  telegraph. 
The  offer  may  of  course  be  explicit,  as  "wire  reply," 

38.  Brauer  v.  Shaw,  168  Mass.  198. 


American  Commercial  Law.  99 

or  "reply  by  return  mail,"  but  if  nothing  is  said,  what 
is  the  rule?  The  authorities  differ.  It  has  been  said 
that  if  there  is  nothing  in  the  case  to  the  contrary,  an 
offer  sent  by  mail  is  an  authorization  to  the  sendee  to 
use  only  the  mail  in  reply;  and  if  the  offer  is  sent  by 
wire  that  is  an  authorization  to  the  sendee  to  use  only 
the  telegraph  in  reply.^"  But,  other  authorities  hold 
that  an  offer  by  mail  may  be  accepted  by  telegram  and 
vice  versa,  and  that  the  acceptance  is  complete  when  put 
in  course  of  transmission.''^ 

(e)     Acceptance  may  be  by  any  method  if  it  actually 
reaches  the  offeror  in  time. 

No  matter  what  mode  of  communication  is  employed 
by  the  offeree,  it  is  clearly  good,  if  it  reaches  the  offeror 
provided  also  it  reaches  him  before  the  offer  has  lapsed. 
Thus  if  A  mails  an  offer  to  B  and  asks  for  a  reply  by 
mail,  and  B  wires  his  reply,  the  contract  is  not  complete 
at  the  time  of  sending  the  message,  but  if  the  reply  goes 
to  A  in  due  season,  the  contract  is  complete  when  it 
reaches  A,  but  he  takes  the  risk  that  it  will  reach  A  and 
reach  him  in  time.^^ 

Sec.  32.  SILENCE  AS  ACCEPTANCE.  Mere  silence 
cannot  be  construed  generally  as  acceptance,  nor  can  one 
claim  he  has  accepted,  where  he  has  merely  remained  silent, 
but  one's  conduct  in  not  replying  where  under  the  circum- 
stances, he  would  be  expected  to  reply  may  debar  him  from 
saying  he  did  not  assent. 

39.  Lucas  V.  W.  U.  T.  Co.,  6  L.  R.  A.  new  series,  1016. 

40.  Farmers  Produce  Co.  v.  Schreiner  (Okla.),  L.  R.  A.  1916 
A.  1297. 

41.  Lucas  V.  W.  U.  T.  Co.,  supra. 


loo  The  Law  of  Contracts. 

Suppose  an  offer  is  made  to   one,  and  he  remains 
silent?    Does  his  lack  of  reply  signify  acceptance? 

It  might  be  contended  that  it  did  or  did  not  either  from 
the  offeror  or  offeree's  standpoint. 

The  offeror  cannot  claim  acceptance  by  the  offeree 
merely  because  the  offeree  does  not  reply.  One  cannot  ' 
impose  a  duty  on  another  to  speak.^^  ^^^t,  there  are  j 
cases  in  which  from  previous  dealings,  an  offeree's  re-  ! 
fusal  to  reject  may  be  a  circumstance  from  which  the  ■ 
offeror  may  infer  an  assent.  ! 

The  offeree  cannot  claim  he  has  assented  where  he  did  ; 
not  speak,  or  at  least  show  by  his  conduct,  known  to  I 
the  offeror,  that  he  accepts .^^ 

42.  Hobbs  V.  Massasoit  Whip  Co.,  158  Mass.  194.  j 

43.  Thurber  v.  Smith,  25  R.  I.  60,  •54  Atl.  790.  j 


CHAPTER  4. 

OFFER  AND  ACCEPTANCE. 

(2)  VALIDITY  OF  ASSENT  THEREIN. 

Sec.  33.    INTRODUCTION. 

We  have  discussed  what  will  constitute  offer  and  what 
acceptance.  In  so  doing  we  have  assumed  a  true  con- 
tractual intent  on  both  sides  without  mistake  as  to  sub- 
ject matter,  or  any  undue  advantage  taken  by  one  side 
over  the  other  by  way  of  fraud,  coercion  or  undue  in- 
fluence. In  other  words  we  have  looked  only  to  the 
words  used  or  acts  done  indicating  offer  and  acceptance 
without  inquiring  whether  there  may  be  extrinsic  cir- 
cumstances which  prevent  those  words  or  acts  from  ex- 
pressing the  true  contractual  intent  of  the  parties.  We 
will  find  that  we  may  group  these  circumstances  under 
the  following  headings : 

(A)  Circumstances  defeating  contractual  intent 
(mistake  and  deception  as  to  act  done). 

(B)  Circumstances  of  unfairness  giving  party  im- 
posed on  a  right  to  disaffirm  the  contract  (fraud  as  to 
consideration  or  in  the  inducement,  duress  and  undue 
influence). 

A.      Extrinsic  Circumstances  Defeating  Contractual  Intent. 

Sec.  34.  FRAUD  IN  THE  INCEPTION  OR  EXECU- 
TION. A  fraud  practiced  by  one  person  upon  another, 
whereby  the  other's  seeming  assent  is  procured  to  a  con- 

iOl 


I02  The  Law  of  Contracts.  j 

tract  which  he  in  reality  never  agreed  to,  prevents  a  contract      i 
from  being  formed.    This  is  variously  called  fraud  in  the  in- 
ception, in  the  execution,  and  in  the  procurement. 

Suppose  A  is  sued  upon  a  note,  to  which  his  signature 
is  attached,  but  which  he  does  not  know  he  has  signed, 
having  been  misled  by  the  payee  into  believing  he  was     j 
signing  an  agreement  for  an  agency.    Is  he  bound  on  the     ] 
note  ?  A  contract  signifies  an  agreement,  and  clearly  there     j 
has  not  been  such  a'n  agreement  in  this  case.    We  have     ' 
heretofore  considered  that  one  may  sign  an  instrument 
and  still  be  bound  thereon,  though  .he  has  not  read  it,  but     , 
this  is  upon  the  theory  that  he  has  been  willing  to  take  a     i 
chance  on  what  it  contains,  and  no  other  rule  would  be  a 
workable  one.    But  in  those  cases  there  has  been  no  mis-     ! 
representation  as  to  what  the  instrument  contains.     We 
are  now  considering  a  case  of  fraud  by  which  the  con- 
tent of  the  alleged  contract  is  misrepresented.     The  rule     ] 
is  that  such  a  contract  is  void.  i 

j 

Example  28.     Plaintiff  was  injured  in  a  railroad  acci-     I 
dent.    While  in  a  dazed  condition  and  about  an  hour  and     I 
a  half  after  the  accident,  he  was  conducted   into  the     ' 
superintendent's  office,  and  told  that  the  railroad  company 
was  willing  to  pay  the  sum  of  $17.00  for  the  injury  to 
his  hat  and  trousers,  and  asked  him  to  sign  a  receipt  for     ; 
same.     Plaintiff  was  seriously  injured  and  brought  suit,     j 
It  turned  out  the  paper  he  signed  was  a  release  in  full  for     | 
his  injuries.     Held,  that  it  was  a  question  for  the  jury     j 
whether  he  was  defrauded  or  not,  and  a  jury's  verdict 
that  he  had  been  so  defrauded,  would  not  be  disturbed.*^ 

In  these  cases  the  contention  is  sometimes  made  that  it 
is  the  defendant's  own  negligence  that  he  did  not  read 

44.  Bliss  V.  N.  Y.  C.  &  H.  R.  Co.,  160  Mass.  447. 


American  Commercial  Law.  103 

what  he  signed,  and  therefore  ought  not  to  be  permitted 
to  avoid  it.  In  answer  we  may  say,  first,  that  in  many 
cases  there  is  no  ground  for  claimmg  negligence,  as  in 
the  case  above,  where  the  party  was  dazed,  or  in  cases 
where  the  other  party  by  some  excuse  or  device  prevents 
him  from  reading.  And,  second,  that  in  a  contest  between 
one  who  has  been  guilty  of  fraud,  and  one  who  has  been 
merely  negligent,  the  justice  ought  to  be  with  the  latter, 
or  in  other  words  that  it  ought  not  to  be  for  the  court  to 
assist  one  guilty  of  fraud  to  recover  the  gains  thereof, 
on  the  ground  that  his  victim  was  careless.'*^  This  is 
therefore  regarded  as  the  better  rule,  although  the  con- 
trary rule  has  been  laid  down  in  some  cases,  and  a  negli- 
gent person  held  to  be  bound  to  a  contract  which  he  never 
really  assented  to,  by  reason  of  the  fraud  of  the  other. 

Sec.  35.  MISTAKE.  A  mutual  mistake  of  fact,  (a)  as  to 
the  existence  of  the  subject  matter,  (b)  as  to  the  identity  of 
the  subject  matter,  (c)  as  to  terms  employed,  prevents  the 
existence  of  a  contract,  but  mistake  as  to  value  or  quality, 
does  not  affect  the  validity  of  the  contract. 

The  subject  of  mistake  in  contract  has  occasioned  a 
great  deal  of  difficulty  and  a  diversity  of  views,  and  what 
is  said  here  will  be  an  attempt  to  formulate  that  part  of 
the  subject  upon  which  there  is  a  general  agreement. 

(a)     Mutual  mistake  as  to  existence  of  subject  matter. 
This  prevents  contract. 

Example  2g.  Riegel  had  a  policy  of  insurance  upon 
the  life  of  his  debtor.    The  debtor  disappeared  and  Riegel 

45.  Maxfield  v.  Schwartz,  45  Minn.  150,  47  N.  W.  448. 


I04  The  Law  of  Contracts. 

kept  up  the  premiums,  but  finding  the  matter  burdensome, 
took  out  a  paid  up  policy  for  a  less  sum,  in  exchange  for 
the  old  policy.  At  the  time  of  this  change,  the  debtor 
was  dead,  unknown  to  both  parties,  and  Riegel  had  the 
right  to  recover  on  the  former  policy.  Held  that  the  mis- 
take prevented  the  new  policy  from  taking  the  place  of 
the  old  and  that  it  would  be  set  aside  and  a  recovery  al- 
lowed on  the  faith  of  the  old  policy.^® 

(b)     Mutual  mistake  as  to  the  identity  of  the  subject 

matter. 

If  one  person  has  in  mind  one  thing  and  the  other  has 
in  mind  another  thing,  and  each  attempts  to  contract  as  to 
thing  he  had  in  mind,  there  is  no  "meeting  of  the  minds" 
and  no  contract  results. 

Example  30.  A  has  a  quantity  of  hemp  and  also  tow 
for  sale  all  done  up  in  bales,  and  identified  by  numbers. 
The  auctioneer  made  out  a  catalogue  describing  the  bales 
by  numbers  and  not  disclosing  the  difference  in  the  com- 
modities. B  examined  some  of  the  bales  of  hemp,  but  not 
of  tow.  At  the  auction  the  auctioneer  ofifered  a  quantity 
of  tow,  describing  it  by  the  number  of  the  bale,  and  B 
bid,  intending  to  buy  hemp.  Held  that  there  was  no  con- 
tract because  of  the  mistake.^ '^ 

(c)     Mutual  mistake  as  to  terms  employed. 

Mistake  as  to  terms  employed  is  not  a  mistake  that 
ordinarily  can  be  set  up  by  a  party  to  a  contract,  if  we 
eliminate  the  cases  of  mistake  induced  by  fraud.  Those 
cases  we  have  already  considered,  and  are  not  to  be 

46.  Riegel  v.  Amer.  L.  Ins.  Co.,  153  Pa.  134. 

47.  Scriven  Bros.  v.  Hindley  &  Co.,  L.  R.,  K.  B.  1913,  p.  564. 


American  Commercial  Law.  105 

thought  of  as  cases  under  the  heading  of  mistake,  but 
rather  as  cases  under  the  subject  of  fraud. 

If,  there  being  no  fraud  present,  a  person  will  not  read 
a  contract,  he  will  be  bound  by  what  it  contains.^'^*  Any 
other  rule,  as  has  been  explained,  could  not  be  a  work- 
able rule,  for  the  reason  that  there  is  really  no  test 
whereby  we  could  determine  the  actual  fact,  and  because 
also,  such  a  rule  would  encourage  laxity. 

Example  57.  A  landlord  presents  a  lease  for  B,  his 
prospective  tenant,  to  sign.  B  signs  it  without  reading 
it.  B  is  bound  by  the  provisions  of  the  lease  although  he 
neglected  to  read  the  lease,  there  being  no  fraud  on  the 
part  of  the  landlord. 

If  a  document  as  finally  written  contains  a  scrivener's 
error,  as  where  the  parties  agree  to  a  one  year  lease,  and 
the  typist  in  preparing  makes  it  ten  years,  a  court  of 
equity  would,  upon  that  fact  being  proved,  reform  the 
instrument  to  meet  the  true  intention  of  the  parties. 

Mistake  as  to  Terms  of  Oral  Contract.  If  there  is  a 
mutual  mistake  as  to  the  terms  of  an  oral  contract,  and 
it  is  evident  to  the  court  that  there  was  such  a  mistake, 
and  if  the  party  claiming  the  mistake  has  not  acted  in 
any  way  to  prejudice  the  other,  there  is  no  contract.'*® 

(d)     Known  Mistake  as  to   Terms  Taken  Advantage 
of  by  the  Other  Party. 

If  one  party  makes  a  mistake  as  to  the  terms  of  the 
contract  which  the  other  party  knows  he  has  made  and 
takes  advantage  thereof,  there  is  no  real  meeting  of 
minds,  and  a  contract  does  not  result. 

47a.  Bateman  v.  Small,  100  S.  E.  573   (Geo.). 
48.  Rupley  V.  Daggett,  74  111.  351. 


io6  The  Law  of  Contracts. 

Example  32.  Butler  wrote  Moses  he  would  sell  him 
cloth  at  "five  cents  a  yard  that  Gale  would  charge  you." 
This  cloth  was  worth  from  $2.00  to  $6.00  a  yard,  and 
Butler  meant  he  would  sell  cloth  for  five  cents  a  yard 
less  than  Gale  would  charge.  Moses  knew  this,  as  he 
knew  that  Gale  would  not  sell  for  the  absurd  price  of  five 
cents  a  yard.    Held  no  contract.^® 

B.    Circumstances  of  Undue  Advantage  Rendering  Contract 
Voidable. 

(a)     Fraud  in  the  inducement  or  consideration. 

Sec.  36.  FRAUD  IN  THE  INDUCEMENT  DEFINED. 
Fraud  in  the  inducement  consists  in  a  representation  of  fact 
by  one  party  to  the  other,  known  to  be  false,  or  with  disre- 
gard as  to  whether  true  or  false,  made  to  be  acted  upon  and 
which  is  relied  upon  to  the  other's  damage. 

If  a  party  to  a  contract  has  secured  its  execution  by 
the  other  party  by  making  a  statement  as  to  a  material 
fact  which  he  knew  to  be  false  and  which  he  made  in 
order  to  secure  its  execution  and  thereby  did  secure  it, 
the  party  thus  misled  may,  by  proceeding  aptly,  avoid 
the  contract  and  may  have  the  aid  of  the  courts,  where 
necessary,  to  secure  rescission. 

In  cases  involving  this  sort  of  fraud,  the  party  de- 
frauded is  not  misled  as  to  the  nature  of  his  act,  but  is 
simply  misinformed  as  to  its  advantages  or  value  to  him. 
He  has,  for  instance,  been  defrauded  in  buying  the 
Maple  Leaf  Farm,  but  he  knezv  that  he  was  buying  that 
farm.  Facts  were  asserted  which  misled  him  in  order 
to  induce  him  to  make  that  contract,  but  he  did  the  very 


49. 


Butler  V.  Moses,  43  Ohio  St.  166,  i  N.  E.  316. 


American  Commercial  Law.  107 

act  and  entered  into  the  very  contract  he  intended.     He 
may  abide  by  this  contract,  or  avoid  it  if  he  chooses. 

Sec.  37.  EXPRESS  STATEMENTS  OF  FACT  AS 
FRAUD.  Statements  of  fact  which  misrepresent,  whether  by 
reason  of  their  falsity,  or  by  being  so  framed  as  to  actually 
mislead,  constitute  fraud. 

Any  statement  of  fact  by  which  another  person  is 
actually  misled,  is  fraudulent. 

In  Twin  Lakes  Land  &  Water  Company  v.  Dohnerj^** 
the  Court  said:  "And  it  is  not  at  all  improbable  that 
defendant's  agents,  without  any  literal  misstatement  of 
fact,  would  have  created  in  Dohner's  mind  the  impression 
that  they  were  claiming  the  existence  of  this  quantity 
of  reserve  water,  and  should  have  they  known  that  what 
they  said  would  create  that  impression  and  so  must  be 
deemed  to  have  misrepresented  in  this  respect  just  as 
much  as  if  they  had  used  the  very  language  charged 
against  them." 

Sec.  38.  OPINIONS  AND  PREDICTIONS  NOT  FRAUD. 
Opinions  and  predictions  are  not  fraud  even  if  stated  by  one 
who  himself  does  not  believe  them  to  be  true. 

It  is  well  established  that  the  statement  of  an  opinion 
or  the  making  of  a  prediction  cannot  be  fraud.  The  rea- 
son is  clear.  First,  because  if  a  statement  is  uttered  as 
an  opinion  we  know  that  an  opinion  is  a  mere  matter 
of  personal  judgment;  and  second,  we  must  look  for 
extravagances  of  language  from  any  person  who  is  seek- 
ing to  drive  a  bargain.  Parties  will  "puff  their  wares" 
and  indulge  in  "dealer's  talk,"^^  and  the  principle  ex- 
tends not  only  to  sales  but  to  all  contracts. 

50.  242  Fed.  399. 

51.  Deming  v.  Darling,  148  Mass.  504. 


io8  The  Law  of  Contracts. 

Example  S3-  Townsend  bought  a  cash  register  upon 
the  statement  that  its  use  would  save  the  expense  of  a 
bookkeeper  and  half  of  a  clerk's  time.  Held  a  mere 
opinion  and  defendant  not  guilty  of  fraud.^^ 

"The  reason  of  this  rule  is  that  while  the  person  to 
whom  the  representations  were  made  has  a  right  to  rely 
upon  them,  he  is  assumed  to  be  equally  able  from  his 
own  opinion  to  come  to  as  correct  a  decision  as  the  other 
party,  and  therefore  cannot  claim  to  be  misled  by  such 
opinion."  ^^ 

According  to  this  rule  a  statement  as  to  value  is  gen- 
erally regarded  as  not  actionable  for  value  is  a  mere  mat- 
ter of  opinion.  "Purchasers  are  presumed  to  know  that 
the  vendor  will,  if  asked  as  to  value,  place  it  as  high  as 
he  thinks  the  property  will  bear,  and,  on  the  other  hand, 
the  vendor  knows  that  the  purchaser  will  endeavor  to 
convince  him  that  the  property  is  worth  considerably 
less.  '  "It  is  naught,  it  is  naught,"  saith  the  buyer,  but 
when  he  has  gone  his  way,  he  boasteth.'  "  ^^*  But,  state- 
ments as  to  value  may  be  made  as  statements  of  fact,  as 
where  they  purport  to  be  so  made  and  the  party  making 
them  has  superior  means  of  knowledge.^* 

Sec.  39.  ACTIVE  CONCEALMENT  AS  FRAUD.  If  a 
person  conceals  facts  for  the  purpose  of  preventing  them 
from  being  discovered  by  the  other  party  to  the  prospective 
contract,  this  is  fraud  which  renders  the  contract  voidable. 

We  will  see  that  mere  silence  as  a  general  rule  (with 
notable  exceptions)  is  not  fraud.     But  if  one  covers  up 

52.  Nat.  Cash  Reg.  Co.  v.  Townsend,  137  N.  C.  652. 

53.  Brady  v.  Cole,  164  III.  116. 

53a.  Morgan  v.  Hodge,  145  Wis.  143,  129  N.  W.  1083. 

54.  Biewer  v.  Mueller,  254  111.  315. 


American  Commercial  Law,  109 

facts  of  a  material  nature  to  prevent  the  other  party  from 
discovering  them,  this  is  fraud. 

Example  34.  A  sues  T  for  damages  for  fraud  and 
deceit  in  inducing  him  to  purchase  interests  in  a  mining 
lease.  T,  upon  becoming  the  owner  of  the  lease,  looked 
about  for  a  purchaser  and  in  order  to  make  the  proposi- 
tion attractive,  concealed  former  mining  operations  show- 
ing that  the  place  had  been  long  since  abandoned  for 
mining  purposes.  To  this  end,  he  built  a  new  shaft  which 
led  into  the  old  mines,  but  this  was  concealed  by  boards 
across  its  bottom,  covered  by  dirt.  He  represented  to  A 
that  the  shaft  was  in  virgin  territory,  of  great  richness 
and  therefore  would  require  years  to  exhaust.  The 
ground  over  the  abandoned  areas  was  sunken  because  of 
withdrawal  of  supports.  This  he  represented  to  be  a 
blow-out.  A  was  without  practical  knowledge  of  mining. 
Upon  T's  representations  and  after  inspecting  the  mine, 
he  purchased  the  lease  from  T.  Held,  that  he  could  re- 
cover. ^^ 

Throwing  one  off  his  guard  by  artifice  so  that  he  will 
not  discover  the  facts  is  fraud,  as  where  his  attention  is 
distracted,  evasive  answers  to  his  questions  are  given, 
or  he  is  otherwise  kept  in  ignorance  by  the  other's  con- 
duct. 

Sec.  40.  SILENCE  AS  FRAUD.  Mere  non-disclosure  or 
silence  is  not  fraud;  with  exceptions  as  later  noted. 

Suppose  that  one,  being  about  to  contract  with  another, 
merely  keeps  silent  as  to  a  point  upon  which  he  knows 
that  the  other  is,  without  any  action  on  his  part,  unin- 
formed or  misinformed — is  it  his  duty  to  speak  and  cor- 

55-  Tooker  v.  Alston,  159  Fed.  599,  16  L.  R.  A.  N.  S.  818. 


no  The  Law  of  Contracts. 

rect  the  misimpression  ?  We  have  previously  noted  that 
if  he  is  aware  of  a  mistake  as  to  a  material  term  of  the 
contract,  his  taking  advantage  of  that  mistake  prevents 
the  minds  of  the  parties  agreeing  upon  the  terms,  as 
where  one  intends  to  offer  to  sell  at  one  figure,  but  really 
proposes  another  which  the  other  party  purports  to  ac- 
cept, knowing  of  the  error.  In  that  case  there  is  no  con- 
tract at  all.  But  now  we  have  that  class  of  cases  in  which 
the  terms  are  agreed  upon,  the  identity  of  the  subject 
matter  is  not  in  question,  but  there  is  some  material  ele- 
ment of  fact  that  one  of  the  parties  to  the  other's  knowl- 
edge, is  uninformed  or  misinformed  about.  Must  he  in- 
form him?  The  general  rule  is  that,  the  parties  dealing 
at  arm's  length,  information  is  not  essential. 

Example  55.  A  gave  B  an  option  to  purchase  real 
estate  for  a  certain  price.  B  knew  of  the  fact  that  a 
manufacturing  plant  was  going  to  be  established  nearby 
which  would  make  the  land  much  more  valuable.  A  did 
not  know  this.  B's  failure  to  disclose  does  not  affect  the 
contract.^^ 

Parties  must  be  on  their  own  lookout;  if  we  attempted 
to  apply  a  test  to  cases  of  this  sort,  it  would  in  the  nature 
of  things  be  indecisive. 

Sec.  41.  SILENCE  AS  FRAUD  —  FACTS  NOT  DIS- 
COVERABLE. If  one  party  has  information  as  to  material 
facts,  which  are,  as  he  knows,  practically  non-accessible  to 
the  other  by  the  exercise  of  all  diligence  one  may  reasonably 
expect  of  such  other,  the  non-disclosure  is  fraud. 

A  duty  may  be  upon  one  to  speak  by  reason  of  the 
peculiarity  of  the  facts  making  the  ascertainment  of  the 

56.  Guaranty  Co.  v.  Liebold,  207  Pa.  399. 


American  Commercial  Law.  iir 

facts  not  discoverable  by  the  other  upon  the  exercise  of 
reasonable  diligence.  This  is  well  illustrated  by  the 
"texas  fever"  case,  as  follows: 

Example  5<5.  A  has  cattle  which  he  knows  to  be 
afflicted  with  "texas  fever,"  a  disease  not  apparent  upon 
any  examination  one  could  be  expected  to  make  upon 
buying  cattle  on  the  market.  He  sells  them  to  B  for  a 
sound  price,  B  examining  them  and  not  discovering  the 
disease.  Ihis  is  fraud  and  B  may  on  accoutit  thereof 
rescind  the  contract  or  have  damages.^''' 

Sec.  42.  SILENCE  AS  FRAUD  — CONTRACT  ONE 
UBERRIMAE  FIDEI.  If  a  contract  is  of  such  a  nature  that 
it  presupposes  full  disclosure  non-disclosure  is  fraud.  This 
has  been  applied  to  cases  of  suretyship  and  insurance.  But 
there  is  difference  of  opinion  among  courts  as  to  the  opera- 
tion of  this  rule. 

It  is  said  that  certain  classes  of  contracts  are  based 
upon  the  presumption  of  the  highest  good  faith  in  making 
them,  and  this  has  been  often  said  as  to  contracts  of  in- 
surance and  suretyship.  But  perhaps  the  true  reason  for 
the  rule  requiring  full  disclosure  in  such  cases  is  the 
fact  a  risk  is  taken  and  the  risk  is  determined  by  the 
actual  facts  and  in  order  to  cover  this  risk  the  actual 
facts  must  be  known.  In  other  words,  if  I  ask  an  in- 
surance company  to  insure  my  life,  what  they  assume 
to  undertake  is  not  a  sham  risk  which  I  can  make  them 
believe  exists  but  a  real  risk  based  upon  facts  as  we  both 
know  them.  The  importance  of  this  principle  is  largely 
diminished  in  life  insurance  cases  by  the  fact  that  such 
insurance  is  written  only  after  a  list  of  questions  is  an- 

57.  Grigsby  v.  Stapleton,  94  Mo.  423. 


112  The  Law  of  Contracts. 

swered  and  the  applicant  may  generally  assume  that  the 
omitted  questions  are  those  whose  answer  the  insurer 
does  not  care  for.  Nevertheless,  even  in  such  a  case,  a 
failure  to  disclose  a  material  fact  which  the  applicant 
must  know  is  material  amounts  to  fraud  according  to 
many  cases. 

Example  57.  A  desires  insurance  upon  his  house.  He 
is  acquainted  with  the  fact  that  incendiary  fires  have 
been  attempted  upon  his  property  very  recently.  He 
must  inform  the  insurance  company  of  his  knowledge  to 
get  valid  insurance.^® 

Example  38.  A  desires  to  obtain  a  bondsman  for  his 
employee,  and  seeks  a  fidelity  company  for  that  purpose. 
The  employee  has  been  a  defaulter  and  is  so  known  to  A. 
A  must  so  inform  the  company. 

Sec.  43.  SILENCE  AS  FRAUD  —  RELATIONSHIPS 
OF  TRUST  AND  CONFIDENCE.  If  one  stands  to  an- 
other in  a  relationship  of  trust  and  confidence,  any  contract 
made  by  him  with  the  other  party  must  be  upon  full  disclosure 
of  all  material  facts  known  by  him,  for  the  reason  that  the 
other  party  because  of  such  relationship  is  not  upon  his  guard. 

The  rule  that  one  contracting  party  need  not  acquaint 
the  other  with  material  facts  which  might  affect  his  de- 
cision to  contract  were  they  known  to  him  is  based  at 
least  partially  upon  the  fact  that  the  parties  are  at  arm's 
length  and  one  owes  no  duty  to  protect  the  other.  In 
those  relationships  in  which  there  is  a  duty  of  protection 
and  for  that  reason  the  party  is  off  his  guard  and  not  at 

S8.  Pelzer  Mfg.  Co.  v.  St.  Paul  Co.,  41  Fed.  271.  (There  is  a 
difference  of  opinion  as  to  this  rule  and  its  application  in  the 
American  courts.) 


American  Commercial  Law.  113 

arm's  length  in  the  bargain,  the  law  requires  full  dis- 
closure. This  is  true  of  the  following  relationships: 
principal  and  agent,  attorney  and  client,  guardian  and 
ward,  trustee  and  beneficiary,  and  director  and  corpora- 
tion. 

Example  5p.  P  employs  A  to  sell  his  real  estate  for 
him.  A  states  that  he  will  buy  it  himself.  If  he  knows 
of  any  material  fact  that  P  does  not  know  which  affects 
the  bargain  he  must  so  inform  P.^^ 

Sec.  44.  SUMMARY  OF  WHAT  CONSTITUTES 
FRAUD,  Below  is  a  table  summarizing  what  constitutes 
fraud.  (For  disafiirmance  and  ratification  in  cases  of  fraud 
see  sections  47  and  48.) 

Fraud  consists  in 

1.  Positive  statements  of  fact  or  any  affirmative 

representation  by  which  the  truth  is  distorted. 

2.  Not  mere  opinions  and  predictions. 

3.  Active  concealment  of  material  facts. 

4.  Not  mere  silence  or  nondisclosure,  unless 

a.  Facts  are  not  discoverable  by  the  other  by 

reasonable  dihgence. 

b.  Contract  is  one  assumed  upon  the  theory  of 

full  disclosure,  as  insurance  and  surety- 
ship. 

c.  Relationship  of  trust  and  confidence. 

— ^attorney  and  client. 
— principal  and  agent. 
— ^guardian  and  ward. 
— trustee  and  beneficiary. 
— director  and  corporation. 

59.  Brooke  v.  Berry,  2  Gill  (Md.)  83. 
Bays— 8 


114  The  Law  of  Contracts. 

(b)     Duress 

Sec.  45.  DURESS  DEFINED  —  ITS  EFFECT.  Duress 
consists  in  securing  a  contract  from  another  by  imprisonment 
or  by  fear  induced  by  threats  regarding  his  personal  safety 
or  liberty  or  his  property  whereby  the  free  exercise  of  his 
will  is  overcome. 

A  contract  must  not  be  secured  from  another  by  threat 
or  force.  The  theory  of  contract  is  that  it  is  an  obUga- 
tion  freely  assumed  by  agreement.  If  it  is  forced  from 
another,  he  may  avoid  it. 

Mere  persuasion,  no  matter  how  constant  or  unpleas- 
ant, is  not  duress.    There  must  be  force  or  fear. 

Duress  by  Imprisonment.  Actual  imprisonment  may 
be  duress  whether  the  imprisonment  is  lawful  if  pro- 
cured for  the  purpose  of  extorting  a  contract  and  a  con- 
tract is  thereby  extorted.  "Though  a  person  is  arrested 
under  a  legal  warrant  by  a  proper  officer,  yet  if  one  of 
the  objects  of  the  arrest  is  thereby  to  enforce  the  settle- 
ment of  a  civil  claim,  such  arrest  is  a  false  imprisonment 
and  a  release  and  conveyance  of  property  by  means  of 
such  arrest  is  void."  *^"  But  it  has  been  held  that  a  con- 
tract will  not  be  set  aside  though  procured  under  duress 
if  it  expresses  or  settles  a  real  indebtedness.^^ 

Duress  by  Threats  (per  Minas).  It  was  once  said  that 
a  threat  would  not  amount  to  duress  unless  it  was  of 
such  a  nature  that  it  would  overcome  the  will  of  a  con- 
stant and  courageous  man;  later,  that  it  was  duress  if  it 
would  overcome  the  will  of  a  person  of  ordinary  firm- 
ness; but  the  latest  development  is  that  it  is  duress  if  it 
is  used  for  the  purpose  of  overcoming,  and  actually  does 
overcome  the  will  of  the  person  involved.^^ 

60.  Jordan  v.  Beecher,  L.  R.  A.  1915  D.  1122  (Ga.) 

61.  Kronmeyer  v.  Buck,  258  III.  586. 

62.  Galusha  v.  Sherman,  81  N.  W.  (Wis.)  495. 


American  Commercial  Law.  115 

Example  40.  Anna  Voboril  gave  notes  to  pay  her  hus- 
band's indebtedness  upon  threat  that  if  she  would  not  do 
so  her  husband  would  be  imprisoned.  Being  sued  on 
the  notes  she  claims  they  were  obtained  from  her  by 
duress.  Plaintiff  contends  that  the  alleged  threat,  even 
if  true,  could  not  constitute  duress  as  the  husband  had 
done  nothing  for  which  he  could  be  arrested.  But  it  ap- 
peared that  Anna  Voboril  was  an  illiterate  foreigner, 
ignorant  of  our  laws,  a  mother  of  seven  children,  un- 
versed in  business  affairs,  and  the  court  held  that  such 
a  threat  was  calculated  to  induce  in  her  a  fear  which 
would  destroy  the  freedom  of  her  will  in  making  the 
contract  in  question.*'^ 

It  was  formerly  held  that  duress  by  threatening  injury 
to  one's  property  was  not  duress,  but  this  absurd  view  is 
abandoned.^'* 

To  threaten  a  person  with  arrest  for  a  crime  that  he  is 
believed  to  have  committed  is  duress  according  to  the 
weight  of  authority;  except  that  it  has  been  held  that  a 
promise  to  pay  or  the  payment  of  a  real  indebtedness  (as 
in  case  of  embezzlement)  will  not  be  disturbed  when  so 
secured.^^ 

(c)     Undue  influence. 

Sec.  46.  UNDUE  INFLUENCE  DEFINED.  ITS  EF- 
FECT. Undue  influence  consists  in  an  abuse  of  influence  or 
power  which  one  by  reason  of  a  fiduciary  relationship  or  of 
the  sickness,  infirmity  or  necessitous  distress  of  the  other, 
has  over  that  other,  thereby  to  induce  him  to  enter  into  a 

63.  Voboril  V.  International  Harv.  Co.,  187  Fed.  973. 

64.  Spaids  V.  Barrett,  57  111.  289. 

65.  Kronmeyer  v.  Buck,  258  111.  586. 


ii6  The  Law  of  Contracts. 

contract  he  would  not  have  freely  made.    It  renders  the  con- 
tract voidable  by  the  other  party. 

The  courts  will  not  interfere  to  relieve  a  person  from 
his  contracts  merely  because  they  are  unjust  or  oppressive 
and  constitute  hardship  upon  him.  Even  if  he  were  in 
distress  or  great  necessity,  or  sick,  or  infirm  from  age, 
or  mentally  weak,  his  contract  is  not  for  that  reason 
voidable,  though  unfair  and  hard,  provided  he  exercised 
his  own  will  and  judgment.  For,  by  such  circumstances 
he  is  not  deprived  of  his  freedom  to  contract.  But  it 
must  be  shown  in  addition  thereto  that  an  advantage 
was  taken  of  him,  depriving  him  of  his  own  mental  free- 
dom. Argtmient,  solicitation  and  pleading,  however 
strong,  do  not  in  themselves  constitute  undue  influence. 

The  chief  cases  of  undue  influence  arise  when  the 
parties  sustain  a  relationship  to  each  other  which  puts 
one  of  them  in  a  position  calculated  to  give  him  great 
advantage  over  the  other  in  directing  his  conduct  and 
acts.  Under  such  circumstances,  the  parties  may  still 
contract  with  each  other;  yet  if  after  a  contract  is  made, 
the  party  at  a  disadvantage,  in  apt  time,  avers  that  he 
was  imposed  upon,  the  court  will  presume  in  his  behalf 
that  such  was  the  case,  casting  the  burden  upon  the  other 
of  showing  that  such  was  not  the  case. 

The  chief  relationships  in  which  the  law  will  presume 
undue  influence  are:  (i)  family  relationships  in  which 
one  party  stands  in  an  influentially  superior  position ; 
(2)  the  relationship  of  guardian  and  ward;  (3)  that  of 
attorney  and  client;  and  (4)  that  of  physician  and  pa- 
tient. 

It  is,  however,  not  necessary  that  there  be  any  technical 
relationship.  "Courts  have  refused  to  set  any  bounds 
to  the  circumstances  out  of  which  a  fiduciary  relation 
may  spring.     *     *     *     jt  extends  to  every  possible  case 


American  Commercial  Law.  117 

in  which  a  fiduciary  relation  exists  in  fact,  and  in  which 
there  is  confidence  reposed  on  one  side  and  resulting 
domination  and  influence  on  the  other."  ^^ 

(d)     Disaffirmance  and  ratification  of  contracts  voidable 
for  foregoing  reasons. 

Sec.  47.  CONDITIONS  OF  DISAFFIRMANCE.  A 
party  wishing  to  disaffirm  on  the  groxmd  of  fraud,  duress  or 
undue  influence  must  do  so  with  reasonable  promptness  un- 
der the  circumstances  after  he  has  discovered  the  fraud,  or 
after  the  undue  influence  or  duress  has  been  removed;  and 
he  must  put  the  other  party  in  statu  quo.  In  cases  of  fraud 
he  may  either  disaffirm  or  sue  for  damages. 

Contracts  obtained  by  means  of  fraud,  duress  or  undue 
influence  are  voidable,  not  void.  Until  avoided  they 
have  the  status  of  contracts.  The  injured  party  may  not 
care  to  disaffirm.  It  is  for  him  to  do  so  after  discoverinjr 
the  fraud,  or  after  the  duress  and  undue  influence  have 
ceased  to  operate. 

This  he  must  do,  if  at  all,  within  a  reasonable  time,  and 
what  is  a  reasonable  time  depends  on  all  of  the  circum- 
stances.^"^ 

He  must  also  give  back  what  he  has  received  under 
the  contract.  Unless  he  has  done  so,  or  made  a  tender 
of  doing  so,  he  cannot  rescind, ^'^ 

Sec.  48.  RATIFICATION.  A  contract  avoidable  for  the 
causes  considered  in  this  chapter  may  be  ratified  by  imdue 

66.  Mors  V.  Peterson,  261  111.  532. 

67.  Mortimer  v.  McMullen,  202  111.  413,  67  N.  E.  20. 

68.  Burwash  v.  Ballou,  230  111.  34. 


ii8  The  Law  of  Contracts. 

delay  and  by  express  affirmation,  or  by  any  acts  that  are 
inconsistent  with  disaffirmance. 

The  contract  being  voidable  only,  and  not  void,  may  be 
ratified.  This  may  be  by  mere  delay ;  ''^  or  by  language 
affimiative  of  the  contract;  or  by  conduct  which  is  in- 
consistent with  the  idea  of  disaffirmance,  as  seUing  the 
property,'^^  or  in  any  way  dealing  with  it  in  a  manner 
which  shows  affirmance.  One  cannot  affirm  and  then  dis- 
affirm, he  must  do  one  or  the  other. 

Of  course  nothing  said  or  done  before  the  fraud  is 
discovered  or  before  the  duress  or  undue  influence  has 
ceased  to  operate  can  be  considered  ratification. 

70.  Burwash  v.  Ballou,  230  111.  34. 

71.  Tarkington  v.  Purvis,  128  Ind.  182. 


CHAPTER  5. 
CONSIDERATION. 

A.    Theory  and  Nature. 

Sec.  49.  CONSIDERATION  DEFINED;  A  NECES- 
SARY ELEMENT  IN  EVERY  SIMPLE  CONTRACT.  A 
promise  or  undertaking  not  under  seal  is  not  legally  binding 
upon  the  promisor  imless  the  promisee  thereof  has  on  its 
faith  and  pursuant  to  it  parted  with  or  promised  to  part  with 
something  to  which  he  has  a  legal  right,  or,  in  other  words, 
unless  such  promisee  has  sustained  a  legal  detriment.  This 
legal  detriment  constitutes  the  consideration. 

By  the  English  common  law  two  classes  of  promises 
were  enforceable :  First,  where  the  promise  was  made 
in  solemn  form,  that  is,  under  seal ;  and  second,  where 
something  was  given,  done,  or  promised  by  the  promisee 
on  account  of  the  promise.  In  the  formation  of  simple 
contracts,  whether  written,  oral  or  implied,  consideration 
must  enter,  and  it  must  enter  also  in  sealed  contracts 
where  the  statute  has  abolished  the  ancient  meaning  of 
the  seal  in  that  regard. 

We  have  noticed  that  contracts  result  from  offer  and 
acceptance.  In  every  simple  contract  the  offer  must 
consist  in  a  promise  to  do  something  or  to  part  with 
something,  if  in  return  therefor,  the  offeror  will  also  do 
something  or  part  with  something  or  promise  to  do  so. 
There  is  here  an  exchange  of  values,  that  is  to  say,  each 
party  gives  up  or  undertakes  to  give  up  something  to 
which  he  is  legally  entitled  in  return  for  the  other  party's 

119 


I20  The  Law  of  Contracts. 

similar  act  or  engagement.  And  the  test  of  the  validity 
of  the  contract  alleged  to  be  found  in  an  offer  and  accept- 
ance consists  in  this :  Did  the  party  now  seeking  to  en- 
force a  promise  made  by  the  other  (either  by  way  of  offer 
or  acceptance)  sustain  a  legal  detriment — ^give  up  some- 
thing to  which  he  was  entitled?  There  may  have  been 
an  offer  and  an  acceptance,  but  the  offeror  or  the  acceptor 
may  have  promised  to  do  something  he  was  already  bound 
to  do ;  he  may  have  promised  to  surrender  something  to 
which  he  had  no  right.    If  so,  no  contract  resulted. 

We  define  a  consideration  by  saying  it  is  a  detriment 
to  the  promisee,  or  a  benefit  to  the  promisor;  but  it  is 
only  in  rare  cases  we  need  consider  whether  it  is  a  benefit 
to  the  promisor.  For  it  is  not  usually  to  be  considered  a 
benefit  to  the  promisor  unless  it  is  also  a  detriment  to 
the  promisee.  It  is  a  benefit  to  the  promisor  when  he 
can  demand  something  or  has  obtained  something  to 
which  he  was  not  otherwise  legally  entitled.  We  may 
then  for  our  purposes  simplify  the  discussion  by  referring 
to  consideration  in  its  aspect  as  a  detriment  to  the  prom- 
isee. 

Thus,  A  offers  to  sell  B  a  certain  acre  of  ground  for 
$5,000  on  certain  terms,  one  year  from  date.  B  ac- 
cepts the  offer.  Each  are  promisors;  each  promisees. 
Each  has  promised  to  part  with  something  to  which  he 
was  legally  entitled.  He  has  therefore  in  the  eyes  of  the 
law  sustained  a  legal  detriment.    A  contract  has  resulted. 

Again,  A  orders  a  sack  of  fiour  from  his  grocer.  A 
promise  to  pay  the  reasonable  value  of  the  flour  is  im- 
plied. B  delivers  the  flour,  thereby  accepting  the  promise 
with  an  act.  B  in  this  case  never  was  the  promisor.  But 
he  becomes  a  promisee  by  accepting  the  promise  by  part- 
ing with  that  which  the  promise  calls  upon  him  to  part 
with.    He  has  sustained  a  legal  detriment.    The  consid- 


American  Commercial  Law.  i2i 

eration  for  A's  promise  is  B's  act,  that  is,  it  is  a  detriment 
to  the  promisee. 

A  detriment  is  sustained  whenever  one  gives  up  some- 
thing to  which  he  has  a  legal  right,  though  he  may  have 
no  moral  right  to  it.  Thus,  we  have  a  line  of  cases  in 
which  a  young  man  is  induced  by  promise  of  reward  to 
give  up  a  self-indulgent  way  of  life.  It  is  held  in  such 
cases  that  if  he  lives  up  to  his  agreement  he  may  recover 
though  it  was  to  his  benefit  to  live  so,  and  no  personal 
benefit  to  the  promisor.  Yielding  up  his  right  to  live  as 
he  chooses  within  the  law  is  a  legal  detriment.'^ ^ 

When  a  person  comes  into  court  to  sue  upon  a  promise, 
he  comes  in  his  capacity  as  promisee.  He  alleges  that  a 
promise  was  made.^o  him  and  the  law  asks  him  what  he 
paid  for  it,  what  detriment  would  it  be  to  him  if  the 
promise  was  not  enforced? 

If  he  has  given  or  promised  nothing  in  return  for  the 
promise  to  him,  that  promise  is  said  to  be  without  con- 
sideration— "nudum  pactum." 

Sec.  50.  INADEQUACY  OF  CONSIDERATION.  The 
adequacy  of  consideration,  as  between  the  parties,  is  imma- 
terial, so  long  as  there  is  no  fraud.  Gross  inadequacy  may 
in  a  proper  case  be  considered  as  evidence  tending  to  prove  an 
allegation  of  fraud. 

If  one  in  full  possession  of  his  faculties  parts  with  a 
right  for  an  inadequate  return,  there  being  no  fraud,  he 
cannot  ask  the  courts  to  aid  him.  The  law  leaves  the 
parties  to  bargain  for  themselves  and  one  may  give  away 
his  property  or  sell  it  for  whatsoever  he  chooses.'^^ 

Where  the  rights  of  creditors  are  involved,  and  affected 

72.  Hamer  v.  Sidway,  124  N.  Y.  538. 

73.  Nelson  v.  Brassington,  116  Pac.  (Wash.)  629. 


122  The  Law  of  Contracts. 

by  the  contract  or  gift,  other  considerations  appear;  alto- 
gether it  may  be  said  generally  that  creditors  who  have 
no  lien  cannot  complain  where  the  debtor  sells  for  even 
an  inadequate  consideration,  so  long  as  he  and  his  vendee 
are  not  acting  fraudulently  to  defeat  or  delay  the  creditor. 
If  a  consideration  is  grossly  inadequate  that  may,  with 
other  circumstances,  make  out  a  case  of  fraud,  but  in 
itself  such  inadequacy  is  not  material. 

B.     Examples  of  Consideration. 

Sec.  51.  CONSIDERATION  MAY  CONSIST  IN  PROM- 
ISE OR  ACT.  The  detriment  sustained  by  one  as  a  con- 
sideration may  be  either  his  promise  or  his  act,  whichever 
is  responsive  to  the  expression  of  the  other  side;  but  a  prom- 
ise to  be  a  consideration  must  be  a  promise  to  do  or  refrain 
from  doing  a  definite  thing  within  an  ascertainable  time. 

A  promise  on  one  side  is  a  good  consideration  for  a 
promise  upon  the  other.  In  other  words,  it  is  not  neces- 
sarily doing  an  act,  but  may  be  the  making  of  a  promise 
to  do  an  act,  which  may  constitute  the  consideration.  This 
depends  upon  the  requirements  of  the  offer  and  accept- 
ance. In  all  bilateral  contracts  the  consideration  for  the 
promise  of  each  is  the  promise  of  the  other. 

A  promise  cannot  be  a  good  consideration  unless  it 
binds  one  within  a  definite  time  to  do  or  refrain  from 
doing  a  definite  thing, — a  promise  cannot  be  a  considera- 
tion^nkss  it  is  definite  enough  to  be  broken. 

Example  41.  A  agreed  to  sell  and  K  to  buy  at  stipu- 
lated prices  10,000  barrels  of  oil  as  the  buyer  might 
desire  them.  Held  to  be  no  contract.  "But  suppose 
Kirk  &  Company  do  not  desire,  and  do  not  order,  or  order 
in  such  quantities  as  would  require  a  hundred  years  to 


American  Commercial  Law.  123 

complete  delivery — is  there  any  way  open  to  the  defend- 
ant to  put  plaintiffs  in  default?"  '^* 

Example  42.  N  agreed  to  sell  and  K  to  buy  all  of  a 
certain  quality  of  pig  iron  which  K  would  need,  use  or 
consume  in  its  business  during  the  coming  season  from 
July  9,  1879,  to  July  I,  1880.  Held,  a  good  contract. 
"It  cannot  be  said  that  K  was  not  bound  by  the  contract. 
It  has  no  right  to  purchase  iron  elsewhere  for  use  in  its 
business."  '^^ 

Where  the  promise  is  to  sell,  and  the  corresponding 
promise  to  buy,  the  needs  of  a  future  period,  the  period 
should  be  definite  and  the  amount  should  be  all  that  the 
buyer  needs  or  all  that  he  needs  up  to  a  certain  amount, 
or,  of  course,  a  prescribed  amount.  It  has  been  argued 
that  it  is  not  certain  that  the  buyer  will  need  any  amount, 
and  this  has  been  answered  by  the  statement  that  in  all 
probability  he  will.  But  that  answer  is  not  the  correct 
one.  If  the  seller  promises  to  sell  and  the  buyer  to  buy, 
his  needs  during  a  certain  future  period,  the  considera- 
tion is  in  fact  that  the  seller  must  stand  ready  to  de- 
liver at  the  prices  and  terms  agreed  on  all  that  the  buyer 
may  order,  and  the  buyer  must,  if  he  needs  any  of  such 
commodity  buy  it  from  this  seller  at  the  prices  and  terms 
agreed  upon.  He  gives  up  his  right  to  buy  elsewhere  on 
possibly  better  terms. 

Sec.  52.  PAST  ACT.  An  act  done  prior  to  the  promise 
sought  to  be  enforced  and  therefore  without  reference  to  it 
does  not  constitute  a  legal  detriment  and  therefore  is  not  a 

74.  American  Cotton  Oil  Co.  v.  Kirk,  68  Fed.  791. 

75.  Nat.  Furn.  Co.  v.  Keystone  Mfg.  Co.,  no  111.  427. 


124  The  Law  of  Contracts. 

consideration  to  support  such  subsequent  promise  and  make 
it  enforceable. 

If  one  performs  an  act  with  no  right  to  claim  any- 
thing for  doing  it,  and  after  that  time  a  promise  to  pay 
him  for  doing  it  is  made,  such  promise  is  without  con- 
sideration and  cannot  be  enforced.  No  detriment  has 
been  sustained  by  the  promisee  on  the  faith  of  the  prom- 
ise. One  must  not  confuse  such  cases  with  the  cases  in 
which,  where  one  does  an  act,  he  does  it  under  such 
circumstances  that  he  may  reasonably  demand  compen- 
sation therefor.  In  such  case  we  know  there  was  really 
a  promise,  though  not  expressed,  in  reliance  upon  which 
the  act  was  done.  But  if  the  act  is  without  reference  to 
receiving  the  reward  afterwards  promised,  the  subse- 
quent promise  is  an  unenforceable  promise. 

Example  4S-  A  father  made  a  promise  of  compensa- 
tion to  a  stranger  who  had  cared  for  his  son  as  an  act 
of  kindness.  He  then  refused  to  perform  the  promise. 
Held,  no  contract.*^^ 

Where  a  discharge  in  bankruptcy  has  been  obtained, 
or  the  statute  of  limitations  has  run,  a  subsequent  prom- 
ise to  pay  is  enforceable,  though  in  some  states  it  must 
be  in  writing. 

Sec.  53.  PERFORMANCE  OF  OR  PROMISE  TO  PER- 
FORM OBLIGATIONS  IMPOSED  BY  LAW.  The  per- 
formance of  or  promise  to  perform  an  act  required  of  one  as 
a  legal  duty  cannot  be  a  legal  detriment,  and  is  therefore 
not  a  consideration. 

Where  one  does  an  act  which  the  law  requires  of 
him,  he  cannot  claim  a  promise  of  reward  made  to  him 

y6.  Mills  V.  Wyman,  3  Pick  (Mass.)  207. 


American  Commercial  Law.  125 

for  doing  it.  Take,  for  instance,  the  case  of  a  reward 
offered  for  the  capture  of  an  accused  person  to  an  of- 
ficer whose  public  duty  is  to  capture  such  person  if  he 
can.  Such  reward  is  not  recoverable,  not  only  because 
there  is  no  consideration,  but  because  pubHc  policy  op- 
poses rewards  in  such  cases.  This  is  true  even  though 
the  officer  actually  exercised  a  greater  degree  of  diligence 
than  he  would  otherwise  have  done.  An  officer  cannot 
bargain  in  respect  to  his  zeal  and  graduate  it  according 
to  the  remuneration  offered.'^  ^ 

If  an  officer  does  that  which  his  legal  duty  does  not 
require  of  him  pursuant  to  an  offer  he  may  recover. 
This  would  be  the  case  where  a  fireman  at  the  risk  of 
his  own  life,  made  a  rescue  pursuant  to  promise  of  re- 
ward made  him. 

Sec.  54.  PROMISE  TO  PERFORM  UNEXECUTED 
CONTRACT.  A  promise  to  perform  or  the  performance  of 
that  which  one  is  under  an  existing  contract  to  perform  is 
not  a  good  consideration. 

Suppose  that  A  has  contracted  with  B,  that  he  will 
dig  a  cellar  for  B,  within  a  certain  time  at  a  certain 
price.  In  the  progress  of  the  work,  A  comes  upon  a 
substratum  of  shale  on  whose  existence  he  had  not  fig- 
ured. To  dig  the  cellar  will  require  a  greater  expense 
than  that  of  his  original  calculations,  and  he  will  lose 
money  on  the  project.  He  therefore  informs  B  that  he 
will  not  proceed  further  unless  B  will  pay  him  $iCK).oo 
in  addition  to  the  original  contract  price.  To  this  B, 
being  in  a  hurry  for  the  cellar,  assents.  He  refuses, 
however,  to  pay  more  than  the  original  contract  price. 
Can  A  force  him  to  pay  the  $100  ?    B's  argument  is  that 

"jT.  Hogan  v.  Stophlet,  179  111.  150. 


126  The  Law  of  Contracts. 

A  was  already  under  a  contract  to  do  this  work,  and  if  he 
offered  him  $ioo  for  doing  it,  his  promise  had  no  legal 
effect,  because  A  suffered  no  detriment.  He  did  noth- 
ing he  was  not  already  bound  to  do.  This  is  the  view 
of  many  of  the  courts.'''^  Some,  however,  allow  a  re- 
covery where  unforeseen  circumstances  arise  (as  in  the 
above  case)   which  make  the  demand  justifiable."^ 

It  is  always  permissible  for  parties  to  rescind  an  old 
agreement  and  substitute  a  new  one,  as  where  A  having 
agreed  to  put  in  single  doors  in  B's  dwelling,  after- 
wards for  a  larger  price,  agrees  to  put  in  double  doors. 
In  such  a  case,  there  is  no  trouble  in  finding  mutual 
considerations.  But  a  mere  promise  to  increase  the 
contract  price  for  no  other  reason  than  that  the  other 
party  regrets  his  contract  and  threatens  to  break  it,  is 
unenforceable. 

Sec.  55.  PART  PAYMENT  OF  DEBT  AS  CONSID- 
ERATION FOR  RELEASE  OF  BALANCE.  A  payment 
of  a  part  of  a  debt  whose  amount  is  liquidated  and  not  in 
question  is  not  a  good  consideration  for  a  release  of  the 
entire  debt;  but  any  disadvantage  in  addition  by  the  debtor 
constitutes  a  consideration;  and  the  rule  does  not  apply  if 
the  payment  is  other  than  by  money  or  if  the  debt  is  un- 
liquidated or  its  validity  in  dispute,  or  a  compromise  by  a 
debtor  with  his  creditors. 

(a)     Part  payment  of  liquidated  debt — General  rule. 

It  was  laid  down  in  early  cases  ^^  and  has  been  gen- 
erally adhered  to  since,  that  a  part  payment  of  a  debt 
cannot  possibly  be  a  good  consideration  for  an  agree- 

78.  Johnson's  Adm'r  v.  iSeller's  Adm'r,  Z2)  Ala.  265. 

79.  King  V.  Duluth,  M.  &  N.  Ry.  Co.,  61  Minn.  482. 

80.  Pinnell's  Case,  5  Co.  117. 


American  Commercial  Law.  127 

ment  to  release  the  entire  debt.  The  reason  given  was 
that  in  paying  a  part  of  his  debt,  the  debtor  was  only 
doing  what  he  was  already  under  legal  obligation  to  do, 
and  the  creditor  was  receiving  no  benefit  except  that 
to  which  he  was  already  entitled;  that  therefore  the 
promise  of  the  creditor  to  release  the  balance  had  no 
consideration  to  support  it  and  it  was  therefore  unen- 
forceable.^^ 

Example  44.  A  owes  B  $100,  due  and  payable.  A 
tells  B  he  will  pay  him  $75.00  if  B  will  receive  it  in 
full  of  the  debt.  B  agrees  and  gives  A  a  receipt  in  full. 
B  may  nevertheless  sue  A  for  the  balance  despite  his 
promise,  on  the  theor}'  that  his  promise  was  without 
consideration.  B  gave  up  no  right  or  thing  to  which  he 
was  entitled  and  A  got  no  advantage  he  was  not  other- 
wise entitled  to. 

This  is  an  undesirable  doctrine  in  our  law  inasmuch 
as  it  encourages  bad  faith  on  the  part  of  creditors  and 
is  against  sound  morality.  It  has  been  repudiated  in 
several  states,^^  has  been  deplored  though  enforced 
in  nearly  all  jurisdictions  ^^  and  prediction  has  been 
made  that  the  courts  will  in  time  abrogate  the  rule.*** 
This  disfavor  has  led  the  courts  to  limit  the  rule  strictly 
to  the  payment  of  a  mature  debt  of  a  liquidated  amount. 
The  various  situations  that  will  prevent  the  operation 
of  the  rule  are  given  below. 

81.  Gilman  v.  Gary,  198  Mass.  318,  84  N.  E.  312. 

82.  Clayton  v.  Clark,  74  Miss.  499;  Herman  v.  Schlessinger,  114 
Wis.  382  (stating  that  the  rule  has  been  abolished  by  statute  in 
Alabama,  Georgia,  Maine,  North  Carolina,  Tennessee  and  Vir- 
ginia and  perhaps  some  other  states). 

83.  Harper  v.  Graham,  20  Ohio  105. 

84.  Schlesinger  v.  Schlesinger,  39  Colo.  44. 


128  The  Law  of  Contracts. 

(b)     Any  disadvantage  in  addition  to  part  payment  of 
debt. 

If  the  debtor  pays  the  part  of  the  debt  before  it  is 
due,  or  at  another  place  than  that  at  which  he  is  bound 
to  pay  it,  or  suffer  any  other  disadvantage,  the  agree- 
ment is  supported  by  ample  consideration  and  the  creditor 
cannot  sue  for  the  balance.  ^^ 

(c)     Payment  other  than  by  money. 

If  the  payment  is  other  than  by  money  the  release  is 
good. 

Example  45.  A  owes  B  $500.  He  offers  B  a  note  of 
X,  which  he  holds  for  $350,  if  B  will  receive  the  same 
in  full  payment.  B  agrees  and  gives  A  a  receipt  in  full. 
This  will  discharge  A's  debt  to  B.^^ 

If  one  gives  his  own  promissory  note  in  full  payment 
for  a  liquidated  debt  of  a  larger  amount,  authorities  dif- 
fer whether  there  is  any  consideration  for  the  agree- 
ment to  discharge  the  balance.  Clearly,  if  there  is  any 
change  in  the  obligation,  as  to  pay  interest  where  none 
was  payable  before,  or  to  pay  a  larger  rate  of  interest, 
or  by  giving  security,  there  is  consideration. 

(d)     Debt  unliquidated. 

If  the  debt  is  unliquidated,  any  agreement  to  settle  it  is 
based  upon  a  good  consideration. 

Example  46.  G  was  tenant  of  S  and  made  repairs. 
He  claimed  the  landlord  agreed  to  re-imburse  him,  but 

85.  Harper  v.  Graham,  supra. 

86.  Varney  v.  Conery,  77  Me.  527. 


American  Commercial  Law.  129 

the  landlord  denied  that  he  had  agreed  to  do  so,  and 
claimed  that  he  was  under  no  obligation  to  make  or  pay 
for  such  repairs.  The  dispute  was  in  good  faith.  The 
tenant  sent  a  check  for  the  month's  rent  with  a  deduc- 
tion to  re-imburse  him  for  the  repairs  marking  such 
check  in  full  payment.  The  landlord  retained  the  check 
protesting  that  he  received  it  in  full  payment  and  brought 
suit  for  the  balance.  The  court  held  that  one  must  re- 
ceive a  check  upon  the  condition  upon  which  it  is  sent, 
and  that*  the  landlord's  retention  of  the  check  was  tanta- 
mount to  an  agreement  by  him  to  receive  the  check  in 
full  payment,  that  the  amount  being  unliquidated  such 
an  agreement  was  supported  by  a  good  consideration.^'^ 

(e)     Composition  by  debtor  with  creditors. 

A  composition  by  a  debtor  with  his  creditors  or  some 
of  them  is  an  arrangement  whereby  such  creditors  agree 
to  take  a  percentage  of  their  claim  in  full  discharge 
thereof  in  order  to  enable  the  debtor  to  successfully 
weather  a  financial  period  of  distress.  The  element  is 
here  introduced  of  the  creditors  agreeing  with  each  other 
and  with  the  debtor,  and  the  releases  of  each  of  them 
is  good  consideration  for  the  others.  Such  an  arrange- 
ment is  everywhere  upheld  as  being  upon  good  considera- 
tion.^^ 

Sec.  56.  COMPROMISE  OF  DISPUTED  CLAIM.  If 
the  validity  of  a  claim  is  disputed,  any  compromise  thereof 
constitutes  a  good  contract. 

A  promise  to  pay  an  amount  of  money  to  settle  a  dis- 
puted claim,  is  upon  acceptance  by  the  other  side  en- 

87.  Snow  V.  Greisheimer,  220  111.  105. 

88.  Baxter  v.  Bell,  86  N.  Y.  195. 

Bays — 9 


130  The  Law  of  Contracts. 

forceable  by  either  side.  The  waiver  of  the  right  to 
have  the  validity  or  invalidity  tried  out  in  Court  con- 
stitutes the  consideration.  In  such  a  case,  the  actual 
merits  of  the  original  controversy  will  not  be  inquired 
into,  for  it  has  been  settled  by  the  contract  of  the  parties. 
If  the  party  against  whom  the  claim  is  made  repudiates 
it,  he  may  be  sued  upon  the  promise,  or  as  he  has  not 
kept  his  promise,  the  claimant  may  also  ignore  it  and 
sue  on  his  original  cause  of  action. 

It  is  essential  to  the  validity  of  a  compromise  of  a 
claim  that  the  claimant  make  it  in  good  faith,  that  is, 
believing  he  has  a  claim.  Some  courts  also  hold  that 
there  must  also  be  a  basis  in  fact  justifying  the  belief, 
although  it  is  never  necessary  that  the  claimant  should 
have  prevailed. 

Example  47.  A  is  struck  by  B's  automobile.  A 
threatens  suit  against  B.  B  denies  liability  claiming  that 
A  was  at  fault  in  stepping  in  front  of  the  car.  B  agrees 
however  in  order  to  avoid  a  law  suit  to  pay  A  $200.00 
and  A  accepts.  A  can  enforce  B's  promise  and  the 
Court  will  not  hear  evidence  as  to  the  validity  of  A's 
original  claim.  B  can  also  plead  this  promise  in  defense 
of  any  suit  brought  by  A  for  the  injury,  unless  B  repudi- 
ated the  promise  or  refused  to  perform  it.  In  that  case 
A  may  sue  either  on  the  promise  or  for  the  original 
injury. 

Sec.  57.  FORBEARANCE  OF  SUIT  AS  GOOD  CON- 
SIDERATION. A  forbearance  to  sue  for  a  definite  time  is 
a  good  consideration  for  a  promise. 

If  a  person  deems  he  has  a  good  cause  of  action  and 
defers  suit  upon  the  same  for  a  definite  period,  this  will 


American  Commercial  Law.  131 

constitute  a  good  consideration  for  a  promise  whereby 
the  forbearance  was  secured. 

Example  48.  A  threatens  to  sue  B.  B  denies  lia- 
bility, and  in  hopes  of  a  settlement  or  for  other  reasons 
prevails  on  A  not  to  bring  his  suit  for  three  months,  B 
promising  to  pay  him  $50  for  this  delay.  This  is  a  good 
contract  and  B  can  enforce  the  promise  to  pay  the  $50 
independent  of  his  right  to  recover  on  the  original  cause 
of  action,  and  without  regard  to  the  validity  of  the 
original  cause  of  action. 

Sec.  58.  CONSIDERATION  IN  SUBSCRIPTIONS.  A 
subscription  made  for  purposes  of  donation,  etc.,  is  unen- 
forceable until  acted  upon  by  incurring  liability,  or  unless  it 
is  given  in  actual  reliance  on  other  subscriptions. 

Where  one  subscribes  to  pay  funds  to  a  church,  a 
charitable  organization,  or  any  institution,  he  is  in  reality 
only  promising  to  make  a  gift.  Such  promise  is  there- 
fore unenforceable.^^  If,  however,  the  promise  is  acted 
upon,  as  by  incurring  liabihty  or  expending  money  on 
the  faith  of  it  in  the  way  it  calls  for,  or  by  raising  else- 
where a  certain  amount  of  money,  if  that  is  the  condi- 
tion of  the  gift,  it  becomes  enforceable.  So  if  there  are 
mutual  subscriptions  and  each  is  in  fact  a  reliance  on 
the  others  and  not  independent  thereof,  a  consideration 
exists  and  the  promise  is  enforceable. 

89.  Pratt  V.  Trustees,  93  111.  475- 


CHAPTER  6. 
LEGALITY  OF  CONTRACTS. 

A.  Legality  of  Contract  an  Essential  Element. 

Sec.  59.  ILLEGAL  AGREEMENTS  VOID.  Any  agree- 
ment  to  violate  the  law  and  any  agreement  forbidden  by  law 
is  void. 

An  illegal  agreement  cannot  be  a  contract.  "Illegal 
contract"  is  a  contradiction  in  terms,  although  a  frequent 
phrase  and  from  usage  permissible. 

Contracts  are  illegal  for  two  reasons :  first,  because 
their  object  is  illegal ;  second,  because  though  the  ob- 
ject is  perfectly  legal,  the  manner  of  making  them  is 
against  the  law. 

A  distinction  is  taken  between  contracts  illegal  in 
character  and  contracts  merely  unenforceable  as  being 
against  public  policy — for  instance,  gambling  agreements 
and  agreements  in  restraint  of  trade.  The  one  is  abso- 
lutely illegal,  the  other  is  illegal  only  in  the  sense  it  is 
unenforceable  on  account  of  being  against  public  policy. 

B.  Particular  Classes  of  Illegal  Agreements. 

(i)     Contracts  whose  objects  are  in  violation  of  law. 

Sec.  60.  CONTRACTS  IN  RESTRAINT  OF  TRADE. 
Contracts  in  restraint  of  trade  are  good  if  not  unreasonable 
under  the  circumstances  of  the  case  and  if  not  unlimited  as 
to  territory. 

132 


American  Commercial  Law.  133 

(a)     Contracts  in  restraint  of  trade,  when  reasonable, 
are  valid. 

A  contract  in  restraint  of  trade  is  a  contract  whereby 
a  person  undertakes  that  he  will  not  engage  in  trade  or 
in  some  particular  line  of  trade;  usually  entered  into  by 
one  who  sells  his  business  to  another.  It  is  valid  if  not 
unreasonable,  and  what  constitutes  unreasonableness  we 
must  determine,  but  first  let  us  notice  why  such  a  con- 
tract, if  reasonable  is  valid. 

The  common  law  and  also  our  statutory  law  has  de- 
veloped upon  the  assumption,  first,  that  the  country 
ought  not  to  be  deprived  of  the  services  of  a  person  who 
is  possibly  skilled  in  one  trade  and  that  trade  only,  by 
any  contract  he  may  make  with  another  agreeing  not  to 
exercise  his  calling ;  second,  that  such  a  person  ought  not 
be  permitted  from  the  standpoint  of  public  policy  to 
create  a  situation  that  will  compel  him  to  leave  the  coun- 
try in  order  to  make  a  living,  and  third,  and  more  impor- 
tant that  competition  between  persons  in  trade  is  a  good 
thing  and  beneficial  to  the  community.  From  these  con- 
siderations, it  would  appear  that  the  common  law  would 
condemn  all  agreements  in  restraint  of  trade,  but  here 
another  phase  of  public  policy  runs  counter  and  results 
in  compromise.  If  a  person  has  built  up  a  business, 
public  policy  requires  that  it  be  a  transferrable  business, 
otherwise  its  building  up  would  be  discouraged,  and 
many  things  might  interpose  to  destroy  it  or  impair  its 
usefulness  to  the  community.  But,  it  cannot  be  sold 
unless  that  most  valuable  and  intangible  part  of  it  can 
be  delivered  to  the  purchaser,  namely,  the  good  will, 
the  expectation  of  continued  custom  hard  to  define  and 
composed  of  many  elements.  This  good  will  is  not  de- 
liverable unless  the  vendor  shall  be  allowed  to  say  that 
he  will  not  next  day  set  up  a  competing  establishment  in 


134  The  Law  of  Contracts. 

the  neighborhood,  perhaps  upon  adjoining  premises  and 
by  his  reputation  draw  to  himself  all  of  that  good  will 
which  is  the  most  valuable  asset  of  the  business  sold. 
The  law  therefore  says  that  it  will  allow  a  person  or 
corporation  to  enter  into  a  contract  in  restraint  of 
trade  ^^*  provided  it  is  in  reasonable  restraint,  that  is  to 
say  is  such  restraint 

(i)  as  is  necessary  for  the  protection  of  the  purchaser 
against  the  competition  of  the  vendor,  and 

(2)  provided  also  it  is  not  unlimited  as  to  the  terri- 
tory of  the  country  even  if  the  business  in  question  is 
so  large  as  to  really  require  unlimited  restriction  for 
the  protection  of  the  vendee ;  but  on  this  last  clause  there 
is  a  difference  of  opinion  as  we  shall  see. 

(b)     Contracts  in  unreasonable  restraint  of  trade  are 
invalid. 

Let  us  consider  what  constitutes  unreasonableness  of 
restraint.  Whether  or  not  a  covenant  in  restraint  of 
trade  for  the  protection  of  good  will  is  reasonable  or  not 
depends  upon  the  facts  of  the  case;  that  is  to  say,  on 
whether  the  area  covered  by  the  covenant  not  to  com- 
pete is  substantially  greater  than  the  area  covered  by 
the  business  affected. 

Example  49.  B,  a  dentist,  having  an  established  busi- 
ness drawing  customers  from  various  points  in  the  coun- 
ty, sold  to  T,  a  dentist,  and  agreed  not  to  compete  in 
the  county.  Afterwards  B  opened  an  office  within  the 
county.     At  A's  suit,  an  injunction  was  granted.^^ 


89a.  Harris  v.  Theus,  10  L.  R.  A.  N.  S.  204. 
90.  Tillinghast  v.  Boothby,  20  R.  I.  59. 


American  Commercial  Law.  135 

Example  50.  An  incorporation  of  fish  dealers  in  a 
sea  port  town,  with  provision  in  the  bill  of  sale  of  each 
business  to  the  corporation,  that  the  seller  will  not  en- 
gage or  become  in  any  way  interested  in  the  same  busi- 
ness in  that  and  an  adjoining  county,  and  within  a  hun- 
dred miles  from  the  town  in  a  period  of  ten  years;  and 
it  appearing  that  the  business  engaged  in  by  the  corpo- 
ration so  formed  was  at  least  co-extensive  with  the  ter- 
ritory prohibited,  held  to  be  valid.^^ 

Example  51.  A  had  a  cracker  and  biscuit  business 
which  extended  over  an  area  of  approximately  100  miles' 
radius.  B  bought  it.  As  a  part  of  the  contract  of  pur- 
chase, A  agreed  not  to  engage  in  the  same  business  within 
a  radius  of  1000  miles.  He  afterwards  started  a  busi- 
ness within  a  radius  of  100  miles.  Held,  that  the  cove- 
nant was  unreasonable  and  therefore  void.^2 

(c)     Contracts  in  general  restraint  of  trade,  when 
reasonable,  are  upheld  by  some,  and  denied 
by  other  courts. 

If  a  contract  is  in  unreasonable  restraint  of  trade, 
whether  limited  or  unHmited  as  to  area,  it  is  void  for  that 
reason,  as  we  have  seen ;  it  is  conceivable,  however,  that 
the  business  may  be  of  such  magnitude  that  it  requires 
a  general  restraint  of  trade  to  protect  the  purchaser.  In 
such  a  case  it  was  stated  in  the  eariier  English  cases, 
which  have  been  followed  by  many  of  our  courts,  that 
the  agreement  was  void.  Any  restraint  was  considered 
unlimited  as  to  space  which  covered  the  entire  country. 
The  ground  of  this  view  was  that  under  the  operation 

91.  Moorehead  Sea  Food  Co.  v.  Way,  169  N.  C.  679. 

92.  Althen  v.  Vreeland,  36  Atl.  (N.  J.)  479. 


136  The  Law  of  Contracts. 

of  an  agreement,  the  vendor  would  likely  be  forced  into 
another  country  where  he  could  pursue  the  sort  of  busi- 
ness or  calling  which  he  had  formerly  followed  in  the 
home  country.  Some  of  the  American  cases  have  fol- 
lowed this  doctrine  and  in  applying  it  treat  either  the 
whole  country  or  the  entire  state  as  an  unlimited  area, 
for  the  reason  stated.''^ 

But  in  other  courts,  this  doctrine  has  been  departed 
from,  and  a  covenant  by  a  vendor  of  a  business  which 
is  of  such  a  scope  that  unlimited  restriction  is  necessary 
to  protect  the  buyer  from  the  seller's  competition,  is 
upheld.94 

(d)  Covenants  in  restraint  of  trade  unlimited  in  time. 

It  is  not  necessary  that  there  be  any  limitation  as  to 
time  to  make  a  restraint  legal. 

(e)  Contract  in  restraint  of  trade  not  good  unless  ancil- 

lary to  a  contract  protecting  good  will. 

As  was  explained  in  the  beginning,  contracts  in  re- 
straint of  trade  are  permitted  merely  for  the  purpose 
of  protecting  the  good  will  where  ancillary  to  another 
contract  which  is  almost  always  one  of  a  sale  of  the 
business.  A  contract  in  restraint  of  trade  entered  into 
by  itself  is  void. 

(f)     Invalidity  does  not  impair  rest  of  contract. 

A  provision  in  a  contract  which  is  invalid  because  of 
unreasonably  restraining  trade  does  not  impair  the  rest 

93.  Henschke  v.  Moore,  257  Pa.  St.  196,  L.  R.  A.  1917  F.  450 
(entire  country)  ;  Lanzit  v.  Mfg.  Co.,  184  111.  326  (state). 

94.  Hall  Mfg.  Co.  V.  Western  Steel  &  Iron  Works,  227  Fed. 
588,  L.  R.  A.  1916  C.  620  (annotated). 


American  Commercial  Law.  137 

of  the  contract.     Such  a  contract  will  stand,  though  the 
restraint  falls. 

Sec.  61.  CONTRACTS  OF  MONOPOLISTIC  TEN- 
DENCY.  Contracts  of  monopolistic  tendency  are  illegal  by 
the  principles  of  the  common  law  and  by  statute. 

A  contract  whose  purpose  or  effect  is  to  create  mo- 
nopoly is  condemned  by  the  common  and  by  statutory  law 
as  opposed  to  public  policy. 

A  monopoly  signifies  an  attempt  to  control  the  mar- 
ket by  destroying  or  preventing  competition  and  con- 
trolling the  sources  of  supply.^'^  It  consists  in  a  wide 
diversity  of  practices  from  agreements  between  competi- 
tors to  maintain  prices  and  restrict  output,  to  practices 
of  powerful  concerns  to  use  unfair  means  to  force  other 
concerns  out  of  business. 

A  corporation  is  not  monopolistic  merely  because  it 
is  large.^® 

There  is  no  monopoly  where  a  concern  controls  the 
market  through  enterprises  in  manufacturing  a  better 
product,  selling  policies  and  the  like. 

Corporation  Trusts.  The  word  "trust"  in  its  general 
legal  sense  indicates  a  legal  ownership  of  property  by 
one  person  for  the  benefit  of  another,  and  is  an  approved 
legal  concept.  The  word  "trust"  as  applied  popularly 
to  indicate  an  arrangement  among  corporations  to  regu- 
late prices  and  stifle  competition,  describes  an  illegal  co- 
operation monopolistic  in  character.  The  original  scheme 
was  to  have  a  trusteeship  of  the  stock  of  competing  cor- 
porations,  trust  certificates  being  issued   therefor,   the 

95.  "An  attempt  to  monopolize  means  an  attempt  to  get  control 
of  the  industry  *  *  *  by  means  which  prevent  other  men 
from  engaging  in  fair  competition  with  him."  U.  S.  v.  Whiting, 
212  Fed.  466. 

96.  U.  S.  V.  Naval  Stores  Co.,  172  Fed.  455. 


138  The  Law  of  Contracts. 

board  of  trustees  holding  the  stock  in  trust,  and  voting 
it,  and  thus  controlling  the  directorate  of  all  the  corpo- 
rations. Such  a  scheme  has  always  been  denounced  by 
the  courts.^'^ 

The  word  "trust"  also  has  conie  to  describe  popularly 
a  monopolistic  corporation,  though  no  technical  trust  is 
involved.  A  corporation  is  not  illegal  merely  because 
large,  but  the  question  is  whether  it  is  in  fact  monopolistic 
in  character. 

Sec.  62.  CONTRACTS  LIMITING  LIABILITY.  Com- 
mon carriers  and  public  service  corporations  can  by  contract 
with  the  patron  limit  their  liability  for  loss  occurring  from 
any  cause  except  their  own  negligence,  unless  a  statute  for- 
bids such  limitation ;  employers  cannot  limit  their  liability  for 
injury  by  negligence;  but  persons  otherwise  acting  in  a  pri- 
vate capacity  can  contract  against  their  own  negligence. 

(a)     Common  carriers  and  other  public  service 
corporations. 

A  common  carrier  of  goods  at  common  law  is  liable 
for  loss  arising  from  any  cause,  negligence  or  not,  ex- 
cept act  of  God  or  Public  Enemy,  but  the  Courts  have 
held  that  this  liability  may  be  Hmited  by  special  con- 
tract, except  that  the  carrier  cannot  limit  liability  aris- 
ing from  the  negligence  of  its  employees.  The  Federal 
Government  has  by  legislation  restored  the  full  common 
law  rule  as  to  interstate  shipments,  by  declaring  such 
agreements  void.  Carriers  of  passengers  may  limit  lia- 
bility, except  for  act  of  negligence,  but  cannot  limit  as 
to  acts  of  negligence. 

The  rule  applies  to  public  service  corporations  gener- 

97.  Distilling  &  Cattle  Feeding  Co.  v.  People,  156  111.  448. 


American  Commercial  Law.  139 

ally  that  they  can  limit  liability  except  in  case  of  loss  by 
negligence. 

(b)     Employers  and  employees. 

Employers  cannot  limit  liability  for  injuries  arising 
from  their  own  negligence. 

Example  52.  Plaintiff,  a  cook  on  the  outfit  cars  of 
a  railroad  company,  in  his  contract  of  employment,  re- 
leased the  company  from  liability  in  case  of  future  in- 
jury. Held,  in  a  suit  for  damages  for  personal  injury, 
such  provision  was  invalid  and  no  bar  to  the  suit.^^ 

(c)     Other  cases. 

It  is  competent  as  a  general  rule  for  one  contracting 
with  another  to  limit  his  liability  for  negligence. 

Example  53.  A  railroad  company  having  a  warehouse 
leased  it  to  C  with  a  provision  in  the  lease  that  the  rail- 
road should  not  be  liable  for  loss  by  fire  originated  from 
its  engines.  A  fire  occurred  and  C  sued  the  company, 
claiming  that  the  provision  was  invalid  to  cover  a  case 
of  negligence.  Held,  valid  and  a  good  defense  even 
against  the  company's  negligence,  as  the  company  was 
not  acting  in  its  capacity  of  common  carrier  in  leasing 
the  warehouse. ^^ 

Sec.  63.  USURIOUS  CONTRACTS.  The  law  of  most 
jurisdictions  prescribes  the  rate  of  interest  which  a  creditor 

98.  Kansas  R.  Co.  v.  Peavey,  29  Kan.  122. 

99.  Checkley  v.  I.  C.  R.  Co.,  257  111.  491. 


140  The  Law  of  Contracts. 

can  charge  the  debtor  for  the  use  of  money,  and  attaches  a 
penalty  or  risk  for  charging  a  greater  rate. 

Interest  is  compensation  for  the  use  of  money  owing 
to  another.  It  is  allowed  in  some  cases  where  not  agreed 
upon.  For  instance,  judgments  bear  interest.  But  gen- 
erally interest  bearing  debts  are  those  which  are  agreed 
upon.  The  law  now  regards  it  as  entirely  proper  that 
one  who  loans  another  money  should  have  compensa- 
tion from  the  other.^*^^  Inasmuch,  however,  as  those  who 
are  borrowers  are  frequently  the  easy  victims  of  op- 
pressive provisions  the  enforcement  of  which  might 
throw  them  or  certain  of  them  upon  the  community  it 
has  become  a  commonly  accepted  policy  of  the  law  to 
limit  the  rate  of  interest  which  it  is  proper  to  charge. 
Above  that  is  "usury."  Charging  usurious  rates  of  in- 
terest is  not  criminal  in  the  sense  that  it  is  punishable 
in  any  criminal  proceeding.  The  penalty  prescribed  is 
a  civil  penalty,  as  for  instance,  loss  of  all  interest.  It 
is  generally  held  that  the  defense  of  usury  is  one  that  a 
party  must  make  for  himself  when  sued  upon  the  loan, 
and  that  if  he  pays  the  interest  he  cannot  recover  it 
back  again  upon  the  ground  that  it  was  usurious.^^^  The 
penalties  prescribed  in  case  of  usury  differ  in  different 
states.  In  some  it  is  loss  of  the  excess  interest,  in  some 
loss  of  all  interest,  in  some  loss  of  a  portion  of  the  prin- 
cipal. 

Corporations  by  some  laws  are  excepted  from  the  op- 
eration of  the  usury  statute.  Any  amount  agreed  to  be 
paid  by  them  is  enforceable. 

Certain  classes  of  lenders  are  allowed  a  greater  rate 

100.  By  the  early  English  law,  "Christians"  were  not  allowed 
to  charge  interest,  and  all  interest,  whether  lawful  (by  those  not 
Christian)   or  unlawful  was  called  "usury." 

loi.  In  re  Fishel,  192  Fed.  412. 


American  Commercial  Law.  141 

of  interest  because  of  the  nature  of  their  business,  as  for 
instance,  pawn  brokers  and  lenders  who  loan  in  small 
amounts  as  a  business.  To  lend  at  such  rates  such 
lenders  must  comply  with  the  law  permitting  that  class 
of  business,  as,  for  instance,  the  pawn  broker  statute. 

Any  device  is  usurious  if  it  amoimts  to  a  greater 
charge  than  is  permissible  under  the  statute,  no  matter 
by  what  name  called.  Thus  a  "commission"  on  one's 
own  money,  a  charge  for  services,  if  merely  evasive, 
make  the  contract  usurious  if  all  the  charges  aggregate 
more  than  the  rate  allowed  by  law.^^^ 

Sec.  64.  WAGER  CONTRACTS.  A  wager  contract  is  a 
contract  that  on  the  outcome  of  a  risk  created  or  assumed 
by  the  contract,  one  party  shall  be  winner,  the  other  loser. 
It  is  illegal. 

There  are  many  forms  of  wager  agreements.  The 
most  obvious  is  the  ordinary  gambling  agreement,  as 
upon  the  outcome  of  a  game  of  cards,  or  a  horse  race, 
or  a  presidential  election  or  the  like.  These  are  unen- 
forceable, although  by  the  early  common  law  they  were 
enforced  by  the  courts.^'*^ 

Wager  insurance  is  an  illustration.  Insurance  is  not 
valid  except  one  have  an  insurable  interest  in  the  thing 
insured,  that  is,  a  loss  to  guard  against  by  reason  of  his 
interest  in  a  thing  independent  of  the  insurance  contract. 
One  cannot  have  insurance  upon  a  life  or  upon  prop- 
erty in  which  he  has  no  interest  to  protect.  One  may, 
however,  take  out  insurance  on  his  own  life  and  make 
his  beneficiary  whomsoever  he  will. 

Wagering  on  the  rise  and  fall  of  the  market  is  an- 
other form  of  wager  agreement.     To  contract  for  the 

102.  In  re  Fishel,  192  Fed.  412. 

103.  Bernard  v.  Taylor,  23  Ore.  416. 


142  The  Law  of  Contracts. 

purchase  or  sale  in  the  future  of  a  commodity  at  a  price 
now  stated  is  not  gambhng  if  an  actual  delivery  is  in- 
tended. But  if  there  is  an  intention  to  settle  by  the 
payment  of  differences,  this  is  iliegal.^O'*  An  option  con- 
tract, that  is  to  say,  a  contract  that  an  offer  either  to 
buy,  or  to  sell,  shall  remain  open  for  a  certain  length 
of  time  for  acceptance,  is  wagering,  where  its  purpose 
is  merely  to  gamble  against  the  future  rise  or  fall  of 
prices. ^^s  Thus,  if  I  offer  wheat  at  $i.oo  a  bushel,  and 
agree  for  a  consideration  paid  me,  that  the  offer  shall 
remain  open  ten  days,  this  is  a  gambhng  contract  if  our 
mutual  intention  is  merely  to  gamble  on  future  prices, 
and  in  some  states  by  statute  any  option  contract  in  com- 
modities is  a  gambling  contract. 

By  statute  in  some  states,  the  right  to  recover  money 
lost  by  gambling  is  given.    Otherwise  it  does  not  exist. 

Sec.  65.  CONTRACTS  TENDING  TO  CORRUPT  THE 
PUBLIC  SERVICE.  Any  agreement  which  tends  to  corrupt 
any  branch  of  the  public  service  is  illegal  and  void,  without  re- 
gard to  its  actual  outcome. 

A  contract  tending  to  corrupt  the  public  service  is 
void.  Contracts  tending  to  cause  the  judiciary,  the  legis- 
lature or  any  officer  of  the  Government  to  show  favorit- 
ism, or  to  disregard  duty  in  any  manner,  are  unenforci- 
ble.  Thus,  agreements  by  which  one  undertakes  to 
"lobby"  before  the  legislature  have  been  repeatedly  con- 
demned, "^^^  as  has  any  contract  which  contemplates  per- 
sonal influence  to  sohcit  ^^'^  official  action.  Contracts 
with  officers  whereby  they  are  to  obtain  greater  reward 

104.  Pope  V.  Hanke,  155  111.  617. 

105.  Bates  V.  Wood,  225  111.  120. 

106.  Mills  V.  Mills,  40  N.  Y.  543. 

107.  Critchfield  v.  Paving  Co.,  174  111.  466. 


American  Commercial  Law.  143 

than  the  law  allows,  are  void.^^^    Various  sorts  of  cases 
are  almost  numberless. 

The  actual  result  in  such  cases  is  immaterial.  A  lob- 
bying agreement  may  be  ineffectual  to  accomplish  its 
purpose  or  may  accomplish  the  enactment  of  a  good  law. 
An  officer  who  is  promised  greater  reward  may  do  only 
what  he  would  or  should  have  done  anyway.  This  is  not 
important.  The  tendency  of  the  contract  to  corrupt  the 
public  service  is  what  makes  it  vicious. 

Sec.  66.  AGREEMENTS  IN  RESTRAINT  OF  MAR- 
RIAGE. By  the  common  law  agreements  in  restraint  of  mar- 
riage were  void. 

Agreements  in  restraint  of  marriage  are  void.  "Mar- 
riage lies  at  the  foundation,  not  only  of  individual  hap- 
piness, but  also  of  the  prosperity,  if  not  the  very  exist- 
ence of  the  social  state ;  and  the  law  therefore  frowns 
upon  and  removes  out  of  the  way,  every  rash  and  un- 
reasonable restraint  upon  it,  whether  by  way  of  penalty 
or  inducement."  ^^^ 

(2)   Contract  illegal  because   of  manner  of  formation. 

Sec.  67.  SUNDAY  AGREEMENT.  Agreements  made  on 
Sunday  are  illegal  imder  some  statutes,  unless  made  to  serve 
some  necessity  or  unless  in  furtherance  of  charity. 

By  common  law,  contracts  made  on  Sunday  were  not 
illegal.  An  early  statute  made  them  so,i^^  unless  such 
contracts  were  in  aid  of  works  of  necessity  or  charity. 
Many  states  have  similar  statutes.    But  in  all  states  Sun- 

108.  Hogan  V.  Stophlet,  179  111.  150. 

109.  Sterling  v.  Sinnickson,  5  N.  J.  L.  885. 
no.  See  Richmond  v.  Moore,  107  111.  429. 


144  'i  HE  Law  of  Contracts. 

day  contracts  are  not  forbidden.  So  in  some  states,  con- 
tracts, whenever  made,  that  contemplate  performance 
on  Sunday,  are  void. 

The  policy  of  the  state,  making  Sunday  contracts  void, 
seems  at  least  questionable  and  has  resulted  in  many  un- 
just decisions. 

Sec.  68.  CONTRACTS  MADE  WITHOUT  REQUIRED 
LICENSE.  If  the  law  requires  one  to  have  a  license  before 
he  can  carry  on  a  certain  occupation,  and  such  license  is  in- 
tended as  a  regulation  measure  a  contract  made  without  the 
license  is  invalid,  but  failing  to  pay  license  fees  required  for 
purely  revenue  purposes  does  not  invalidate  a  contract. 

If  a  license  must  be  obtained  by  one  before  he  may 
practice  a  certain  occupation  or  profession,  and  such 
license  is  for  the  purpose  of  regulating  the  calling  and 
protecting  the  public,  any  contract  made  by  one  who  has 
no  such  Hcense  is  invalid,  as,  for  instance,  a  contract  for 
legal  services  with  one  not  admitted  to  practice  ^^^  (fees 
not  recoverable)  ;  or  with  a  real  estate  broker  who  has 
not  paid  his  license  (fees  not  recoverable). ^^^ 

C.    Intent  to  Put  to  Illegal  Use  Avails  of  Legal  Contract. 

Sec.  69.  KNOWLEDGE  BY  ONE  OF  OTHER'S  IN- 
TENT TO  COMMIT  CRIME.  Where  the  contract  is  in- 
nocent upon  its  face,  and  the  intention  of  one  party  is  not 
illegal,  the  guilty  intention  of  the  other  will  not  invalidate 
the  agreement  as  to  the  first  party;  and  though  that  guilty 
intention  is  known  to  such  first  party,  yet  if  he  have  no  share 
therein  and  do  nothing  in  aid  thereof,  the  contract  is  enforce- 

111.  Brown  v.  Phelps,  2ii  Mass.  376,  97  N.  E.  762. 

112.  Buckley  v.  Humason,  50  Minn.   195. 


American  Commercial  Law.  145' 

able  by  him,  unless  the  intention  is  of  a  highly  immoral  or 
heinous  character. 

Suppose  that  a  contract  is  fair  upon  its  face  and  ca- 
pable of  performance  for  a  legal  purpose,  will  the  guilty 
intention  of  one  party  to  take  an  illegal  advantage  of 
it  make  the  agreement  illegal?  If  that  intention  is  secret, 
manifestly  the  party  harboring  it  cannot  avail  himself  of 
it  to  prevent  enforcement  by  the  other.  But  suppose  the 
other  party  knows  of  such  intention.  It  seems  well  es- 
tablished that  if  his  share  in  the  intention  is  by  way  of 
mere  knowledge,  that  will  not  vitiate  the  agreement  as 
to  him,  it  being  kept  in  mind  that  the  agreement  is  one 
which  on  its  face  is  capable  of  a  legal  object.  An  ex- 
ception to  this  rule  is  that  where  the  illegality  contem- 
plated is  of  a  highly  immoral  or  heinous  character,  the 
mere  knowledge  will  vitiate  the  agreement  on  the  theory 
that  one  contracting  party  having  knowledge  of  such 
contemplated  illegahty  becomes  by  his  consent  to  the 
contract,  part  ice  ps  criminis. 

Within  these  rules  it  has  been  held  that  mere  knowl- 
edge that  the  buyer  expects  to  resell  the  goods  bought 
under  the  contract  without  a  required  license  can  not 
be  set  up  in  defense  to  a  suit  for  the  purchase  price, 
the  seller  doing  nothing  to  aid  or  encourage  the  viola- 
tion of  law,  and  the  goods  not  being  sold  for  the  express 
purpose  of  enabling  him  to  such  violation. ^^^  But  if  he 
should  sell  poison  knowing  the  intention  was  to  accom- 
plish a  murder,  he  would  be  barred.^^'*  If  one  know- 
ing that  another  intends  to  sell  liquor  contrary  to  law, 
aids   him   in  the   execution  of  that   intention  by   false 

113.  Graves  v.  Johnson,  179  Mass.  53. 

114.  Hanauer  v.  Doane,  12  Wall.  (U.  S.)  342  (treason). 
Bays — 10 


146  The  Law  of  Contracts. 

wrapping,  fictitious  inventories,  etc.,  he  becomes  a  party 
to  the  illegality  and  cannot  enforce  the  agreement. ^^^ 

D.    Judicial  Remedies  in  Illegal  Agreements. 

Sec.  70.  NO  REMEDY  BY  WAY  OF  ENFORCEMENT. 
A  court  will  not  enforce  an  illegal  agreement. 

From  the  considerations  noted  throughout  this  chap- 
ter, it  is  apparent  that  if  an  agreement  is  positively  illegal, 
or  against  public  policy,  courts  will  not  enforce  it.  If 
it  is  illegal  in  its  nature,  the  maxim  applies  "Ex  turpi 
contractu  non  oritur  actio."  ^^*^ 

As  will  be  seen  in  the  sections  following,  some  relief 
may  be  afforded  in  certain  cases  by  parties  to  illegal  con- 
tracts, but  the  reUef  is  by  way  of  withdrawal,  not  en- 
forcement. 

Sec.  71.  NO  REMEDY  BY  WAY  OF  RESCISSION.  An 
illegal  or  unenforceable  contract  which  has  been  executed, 
will  not  be  rescinded  by  the  courts. 

If  a  person  has  lost  money  or  parted  with  any  con- 
sideration in  the  performance  of  an  illegal  agreement, 
he  will  not  be  aided  by  the  courts  in  the  recovery  of 
what  he  has  parted  with.  As  is  frequently  said,  "The 
Court  will  leave  him  where  it  finds  him."  As  the  maxim 
has  it,  "allegans  suam  turpitudinem  non  est  audiendus." 

Example  54.  H  paid  C  $300.00  for  counterfeit  money. 
C  did  not  produce  the  money.  H  sues  to  get  his  money 
back.     Held,  the  Court  will  not  help  him.^^^ 


115.  Kohn  V.  Melcher,  43  Fed.  641. 

116.  Goodrich  v.  Tenney,  144  111.  422. 

117.  Chapman  v.  Haley,  80  S.  W.  (Ky.)  190. 


American  Commercial  Law.  147 

To  this  rule  there  are  some  exceptions,  as  shown  below. 

Sec.  72.  PARTIES  NOT  IN  EQUAL  GUILT.  If  the 
plaintiff  is  not  in  equal  guilt  with  the  defendant,  he  may  re- 
cover what  he  has  parted  with. 

An  exception  is  made  to  the  rule  that  no  relief  will  be 
granted  where  the  parties  are  not  "in  pari  delicto/'  such 
relief  being  always  by  way  of  avoidance  and  not  en- 
forcement. These  cases,  although  called  cases  of  "un- 
equal guilt,"  usually  involve  the  element  of  undue  in- 
fluence, fraud,  oppression  or  superior  advantage  of  some 
sort,  and  there  is  not  merely  a  comparison  of  degrees 
of  guilt,  that  being  quite  impossible.^^^ 

Example  55.  Wolf  was  indicted  for  murder  and  was 
out  on  bail.  Baehr  loaned  him  money  with  which  to 
flee  from  justice,  and  took  a  mortgage  on  Wolf's  land. 
Wolf  was  innocent  of  the  crime  with  which  he  was 
charged,  but  under  Baehr's  insinuations  and  arguments, 
his  fears  preyed  on  him  and  he  fled  from  justice.  Baehr's 
intentions  were  that  Wolf  should  disappear  and  he  would 
ultimately  have  clear  title  to  Wolf's  land.  Wolf  returned 
and  seeks  foreclosure  from  the  mortgage.  Baehr  de- 
fends that  Wolf  mortgaged  the  land  to  obtain  money  to 
flee  from  justice.  But  the  Court  held  that  there  was 
a  species  of  duress  here  which  made  the  parties  to  be 
unequally  in  guilt  and  Wolf  could  have  relief. ^^^ 

Sec.  73.  DEFENDANT'S  CONTRACT  WHOLLY  EX- 
ECUTORY:  Doctrine  of  locus  poenitentiae.  Where  the 
defendant's  part  of  the  contract  is  totally  unperformed  by 
him,  and  plaintiff  has  paid  money  or  parted  with  property  to 

118.  Duval  V.  Wellman,  124  N.  Y.  156. 

119.  Baehr  v.  Wolf,  59  111.  470. 


148  The  Law  of  Contracts. 

the  defendant  under  an  illegal  contract,  some  courts  allow  a 
recovery. 

Another  exception  as  to  a  right  to  rescind  in  case  of 
an  illegal  contract  is  one  not  so  clearly  defined,  not 
recognized  by  all  courts  and  which  seems  as  an  excep- 
tion to  conflict  with  the  rule  rather  than  to  be  an  excep- 
tion to  it,  and  may  be  stated  generally  that  where  the 
plaintiff  has  paid  money  or  parted  with  property  to  the 
defendant,  and  the  defendant  has  as  yet  done  nothing, 
or  at  most  very  little  in  the  performance  of  the  contract, 
the  plaintiff  being  in  a  place  of  repentance  (locus  poeni- 
tentice),  may  recover  what  he  has  parted  with.  Thus, 
one  who  has  paid  a  wager  to  a  stakeholder,  has  been 
allowed  to  recover  it  where,  by  acting,  he  prevents  a 
horse  race  from  being  run.^^o  g^^-  ^j^jg  doctrine  is  not 
accepted  everywhere,  and  its  distinction  as  an  exception 
is  not  clearly  distinguished  from  the  general  rule  that 
one  who  has  become  a  party  to  an  illegal  contract  is  en- 
titled to  no  aid  from  the  courts,  even  by  way  of  relief. 

Sec.  74.  WHERE  STATUTE  ALLOWS  RECOVERY. 
Even  if  the  contract  is  executed  the  statute  in  some  cases  al- 
lows money  paid  or  property  parted  with  to  be  recovered. 

In  some  cases  the  legislature  deems  it  wise  to  make 
exceptions  to  the  law  and  allow  a  party  to  be  put  back 
in  his  original  position.  Thus,  in  some  states  one  can 
recover  money  lost  at  gaming.  The  common  law,  ap- 
plying the  general  rule,  v*'ould  leave  both  parties  in  the 
position  in  which  they  have  placed  themselves,  that  is, 
would  give  its  aid  to  neither  to  relieve  them  of  their 
illegal  act.    But  the  legislature  in  some  states  has  deemed 

120.  Johnston  v.  Russell,  ^7  Cal.  670. 


American  Commercial  Law.  149 

it  best  to  alter  this.^^i  So  in  case  of  money  paid  to  a 
lottery  in  some  states;  and  in  some  states  usury  paid 
may  be  recovered. 

(d)     Contracts  partly  legal  and  partly  illegal. 

Sec.  75.  WHERE  CONTRACT  PARTLY  LEGAL, 
PARTLY  ILLEGAL.  If  one  inseparable  promise  is  based 
on  several  considerations,  some  illegal,  the  promise  is  never- 
theless imenforceable  in  toto;  but  if  there  are  several  prom- 
ises, each  referable  to  a  separate  consideration,  only  those 
promises  will  fall  which  are  supported  by  illegal  considera- 
tions. 

If  an  entire  promise  is  based  on  one  legal,  one  illegal 
consideration,  it  is  impossible  to  say  what  part  of  the 
promise  is  supported  by  the  legal  consideration  and  there- 
fore the  illegality  will  go  to  the  whole  contract. ^22  Thus, 
if  A  makes  a  promise  to  pay  $100  for  a  slot  machine 
and  a  counter,  it  is  impossible  to  say  which  part  of  the 
$100  is  for  the  machine  and  which  for  the  counter.  The 
court  cannot  divide  the  promise  for  the  parties  and  make 
a  contract  for  them.  But  suppose  at  one  bargaining  A 
orders  a  slot  machine  for  $50  and  a  counter  for  $50; 
this  is  one  contract,  yet  its  promises  and  considerations 
are  separable.  The  good  will  be  upheld.  The  illegal  will 
fall. 

121.  Rice  V.  Winslow,  182  Mass.  273. 

122.  Bixby  V.  Moor,  51  New  Hampshire  Reports,  402  (suit  for 
wages  for  services  rendered  in  caring  for  a  billiard  hall  operated 
legally  and  a  saloon  operated  illegally,  under  one  indivisible 
contract.  Held,  there  could  be  no  recovery  for  any  of  the 
services). 


CHAPTER  7. 
FORM  AND   EVIDENCE   OF  CONTRACT. 
Sec.  76.    GENERAL  STATEMENT. 

We  have  considered  the  ingredients  that  must  enter 
in  the  formation  of  contracts,  without  which  a  contract 
cannot  exist;  confining  ourselves  to  a  consideration  of 
those  elements  essential  to  all  contracts,  and  disregard- 
ing elements  which  may  be  additionally  required  in  the 
formation  of  particular  types  of  contracts,  and  until  this 
time  also  ignoring  the  fact  that  in  the  contract  under 
seal,  or  only  true  type  of  formal  contract,  consideration, 
though  usually  present,  is  not  an  essential  element,  the 
seal  replacing  it  as  completing  the  quota  of  essential  ele- 
ments. Such  contract  under  seal  will  be  considered  at 
this  point  as  one  of  the  subheadings  of  this  chapter. 

Let  us  now  consider  the  form  which  the  contract  may 
take  in  its  f omiation ;  and  also  what  sort  of  evidence  the 
law  may  require  for  its  proof. 

A,    The  Formal  Contract  or  Contract  Under  Seal. 

Sec.  77.  DEFINITION  OF  SEALED  INSTRUMENT. 
A  contract  is  under  seal  when  the  impression  or  mark  is  af- 
fixed which  constitutes  in  law  the  seal.  This  by  the  common 
law  was  an  impression  on  wax  affixed  to  the  instrument.  It 
may  now  consist  in  a  scrawl.  A  contract  under  seal  is  called 
a  formal  contract  or  specialty. 

In  order  for  us  to  have  a  general  understanding  of 
contract  law  it  becomes  necessary  for  us  to  consider  the 

150 


American  Commercial  Law,  151 

contract  under  seal,  to  inquire  what  contracts  must  be 
under  seal,  and  to  notice  the  effect  of  putting  any  con- 
tract under  seal.  Perhaps  the  reader  in  signing  some 
document  has  noticed  the  word  "Seal"  at  the  end  of  the 
line  on  which  he  has  signed,  and  has  wondered  just  what 
was  the  exact  purpose  and  effect  of  that  word.  Let  us 
note  first,  that  the  great  mjajority  of  contracts  into  which 
men  enter  day  by  day  are  not  under  seal,  except  when 
they  concern  real  estate  or  consist  in  penal  bonds,  al- 
though any  other  contract  may  be  under  seal.  We  may 
say  further  that  it  seems  to  be  the  tendency  of  legis- 
latures and  courts  to  minimize  the  importance  of  the  seal, 
although  it  is  still  in  the  majority  of  the  states  of  much 
importance.  But  even  where  it  still  maintains  its  an- 
cient meaning  or  any  part  thereof  its  importance  to  the 
layman  may  be  greatly  lessened  by  these  three  facts: 

First,  in  executing  instruments  which  must  be  under 
seal  (as  deeds,  mortgages,  etc.),  either  printed  forms  are 
used  upon  which  the  seal  is  printed,  or  the  instrument 
is  executed  under  the  advice  of  an  attorney  at  law  who 
sees  to  it  that  the  seal  is  attached. 

Second,  the  vast  majority  of  contracts  entered  into 
for  commercial  purposes  are  not  under  seal,  and  it  is, 
therefore,  the  law  of  unsealed  contracts  which  is  of  chief 
concern  to  the  layman. 

Third,  though  we  shall  find  that  a  promise  is  binding 
when  under  seal  though  it  lacks  consideration  and  not 
binding  when  not  under  seal  if  so  lacking,  yet  it  is  a 
rare  instance  when  a  contract  under  seal  does  not  have 
some  consideration,  and  its  importance  for  that  purpose 
becomes  greatly  minimized. 

Yet,  when  all  is  said,  it  is  of  importance  for  the  lay- 
man to  know  something  of  this  form  which  has  been  of 
vast  importance  in  the  history  of  contract  law,  and  which 


152  The  Law  of  Contracts. 

still  in  many  states  today  determines  the  fate  of  impor- 
tant litigation. 

A  seal  by  the  old  common  law  was  an  impressed  wax 
or  wafer  affixed  to  the  instrument  to  indicate  an  assent 
thereto  and  a  deliberate  intention  to  be  bound.  The  in- 
strument with  which  the  impression  was  made  was  also 
called  a  seal.  To  say  that  a  contract  was  under  seal 
meant  that  an  impressionable  substance  had  been  at- 
tached to  it  and  impressed  with  the  obligor's  seal  or  mark. 
This  was  taken  to  indicate  that  the  party  sealing  the  in- 
strument thereby  asserted  in  a  solemn  and  deliberate  way 
that  he  intended  to  be  bound  according  to  the  covenants 
therein  contained.  Usually  a  recital  was  made  in  the 
contract  that  it  was  under  seal,  thus,  "Given  under  my 
hand  and  seal,"  or  "Witness  my  hand  and  seal,"  but  this 
was  not  essential. 

By  modem  legislation  it  is  no  longer  necessary  to  use 
an  impressed  wax  or  wafer  to  put  an  instrument  under 
seal.  Ordinarily  one  simply  writes  after  his  signature 
the  word  "(Seal)"  or  "L.  S."  (Locus  Sigilli,  place  of  the 
seal). 

Sec.  78.  EFFECT  OF  SEAL  IN  EARLY  LAW.  By  the 
common  law  a  seal  makes  a  promise  binding  though  without 
consideration. 

By  the  common  law,  as  we  have  seen,  consideration 
was  necessary,  as  it  is  now,  to  make  effectual  any  promise 
which  was  not  under  seal,  but  if  it  was  under  seal  it  was 
not  necessary.  It  was  considered  that  when  a  party 
deliberately  entered  into  a  promise  by  affixing  his  seal 
thereto,  there  was  no  reason  why  he  should  not  be  bound 
thereupon,  even  though  such  promise  did  not  contemplate 
that  anything  should  be  given  or  promised  in  return. ^^3 

123.  Walker  v.  Walker,  13  Ired.  (N.  C.)  335. 


American  Commercial  Law.  153 

Accordingly  we  may  say  that  the  common  law  di- 
vided contracts  into  two  great  classes,  those  which, 
whether  oral,  implied  or  written,  were  not  under  seal, 
and  those  which  were  under  seal.  The  first  were  known 
as  simple  contracts ;  the  second,  as  formal  contracts,  con- 
tracts under  seal  or  specialties.  It  was  the  presump- 
tion of  the  law,  which  once  may  have  accorded  with 
the  fact,  that  promises  which  were  under  seal  were  made 
with  great  solemnity  and  deliberation,  whereas  promises 
not  under  seal  (and  therefore,  in  the  old  days,  probably 
not  even  signed  or  written)  were  apt  to  be  made  lightly 
with  insufficient  deliberation,  and  therefore  it  was  said 
that  in  such  a  case  the  promise  should  not  be  considered 
as  contractual  unless  it  contemplated  that  something 
should  be  promised  or  given  in  reliance  on  it  and  such 
thing  was  in  fact  promised  or  given  as  contemplated. 

It  is  no  doubt  true  that  at  one  time  putting  a  seal  to 
a  contract  indicated  greater  deliberation,  but  it  does  not 
do  so  now.  When  the  seal  was  first  used,  the  ability 
by  the  average  man  to  write  was  an  uncommon,  and 
indeed,  a  despised  thing.  To  make  his  signature,  as 
illiterate  men  do  in  these  days  by  a  cross,  each  man  had 
his  seal  with  its  highly  distinctive  impression.  He  needed 
only  to  use  it  in  those  non-commercial  days,  upon  rare 
and  important  occasions,  and  consequently  might  well 
be  presumed  to  do  so  only  upon  full  deliberation,  and 
with  a  solemnity  of  circumstance  which  made  his  prom- 
ise binding. 

This  is  an  old  habit  fallen  into  disuse.  That  the  seal 
still  has  importance  is  explained  only  by  a  reference  to  its 
history. 

Sec.  79.  INSTRUMENTS  REQUIRING  SEAL  AT 
COMMON  LAW.  By  the  common  law  a  seal  is  essential  to 
make  binding  all  promises  intended  to  operate  without  con- 


154  The  Law  of  Contracts. 

sideration  and  is  required  upon  deeds,  mortgages,  bonds  and 
powers  of  attorney  regardless  of  the  consideration. 

A  deed  conveying  the  absolute  title  of  real  estate  to 
another,  or  a  defeasible  title  by  way  of  trust  or  mort- 
gage, must  be  under  seal  in  many  stcPtes.  The  very 
definition  of  a  bond  signifies  that  it  is  an  instrument 
under  seal ;  a  power  of  attorney,  that  is,  a  formal  con- 
ferring of  agency  upon  another  is  always  under  seal, 
and  where  an  agent  is  appointed  to  execute  an  instru- 
ment under  seal,  his  authority  must  also  be  under  seal. 
A  seal  placed  on  any  contract  makes  it  a  formal  con^ 
tract  or  specialty  although  the  seal  is  not  necessary. 

Sec.  80.  MODERN  LEGISLATION  IN  RESPECT  TO 
SEALED  INSTRUMENTS.  Modem  legislation  tends  to 
minimize  the  distinction  between  sealed  and  unsealed  instru- 
ments, yet  in  many  States  the  seal  still  retsuns  much  of  its 
ancient  dignity. 

We  have  seen  that  a  promise  under  seal  was  given 
a  weight  not  accorded  other  promises  and  this  was  be- 
cause the  use  of  the  seal  indicated,  or  was  presumed  to 
indicate,  deliberation  on  the  part  of  the  promisor.  We 
have  said  that  it  no  longer  does  so.  One  who  signs  his 
name  to  a  contract  is  doing  in  another  way  the  very 
thing  that  was  in  olden  times  done  when  the  seal  was 
affixed.  Legislation  has  permitted  the  use  of  a  printed 
or  written  scrawl  in  the  place  of  the  impression  on  wax, 
and  this  in  itself  has  taken  from  men's  minds  the 
solemnity  of  the  act  of  sealing.  It  cannot  with  truth 
be  said  that  there  is  any  greater  deliberation  in  one's 
miind  from  the  fact  that  he  forms  a  scrawl  after  his 
name,  or  writes  his  name  before  a  printed  scrawl.  Be- 
ginning with  this  legislation  which  permits  the  use  of 


American  Commercial  Law.  155 

the  scrawl,  some  of  the  legislatures  have  adopted  laws 
tending  to  minimize,  or  in  some  cases  altogether  abolish, 
the  use  and  effect  of  the  sealed  instrument.  Such  legis- 
lation we  may  classify  as  follows : 

(a)  Legislation  in  respect  to  the  form  of  bringing 
suit; 

(b)  Legislation  in  respect  to  the  form  of  seal.  This 
has  been  brought  about  in  most  states.  The  seal  may 
be  by  scrawl  with  use  of  the  words  "'Seal"  or  "L.  S." 
contained  therein.  Such  scrawl  may  be  written  or 
printed;  ^^4 

(c)  Legislation  allowing  want  or  failure  of  consid- 
eration to  be  shown  in  a  court  of  law.  Under  the  com- 
mon law  a  common  law  court  could  not  open  up  a  sealed 
instrument  for  that  purpose. 

(d)  Legislation  abolishing  all  distinction  between 
sealed  and  unsealed  instruments  or  providing  that  a  seal 
shall  be  unnecessary  on  any  contract.  Such  legislation 
places  all  contracts  on  the  plane  of  the  simple  contracts. 
It  is  in  force  in  most  of  the  states.^25 

B.    Contracts  Required  by  Law  to  Be  in  Writing. 

Sec.  81.  CERTAIN  KINDS  OF  CONTRACTS  MUST 
BE  IN  WRITING,  IN  ORDER  TO  BE  EFFECTUAL. 
Such  are  conveyances  of  real  estate,  negotiable  instruments, 

124.  Laws  to  this  effect  are  in  force  in  most  of  the  states. 

125.  The  seal  is  either  abolished  in  the  following  states  or  else 
amounts  only  to  a  presumptive  evidence  of  consideration  which 
may  be  rebutted  to  defeat  the  contract :  Alabama,  Arizona, 
California,  Idaho,  Iowa,  Kansas,  Michigan,  Minnesota,  Missouri, 
Mississippi,  Montana,  Nebraska,  New  Mexico,  Tennessee,  Texas, 
Wyoming.  In  many  states  there  is  still  preserved  a  marked  dis- 
tinction between  sealed  and  unsealed  instruments.  The  seal  is 
necessary  on  certain  documents  and  whenever  used  has  more  or 
less  of  its  ancient  meaning. 


156  The  Law  of  Contracts. 

promises  to  pay  debts  barred  by  statute  of  limitations,  as- 
signment of  patents,  etc. 

Some  contracts  cannot  exist  as  such  unless  in  writing 
because  of  some  specific  provision  of  the  law  so  requir- 
ing it. 

A  negotiable  instrument  must  be  in  writing. 

Acceptances  of  bills  of  exchange  must  be  in  writing. 

A  deed  must  be  in  writing. 

A  bond  is  necessarily  a  written  instrument. 

An  assignment  of  a  patent  must  be  written. 

Under  some  statutes,  promises  relied  upon  to  pre- 
vent the  running  of  the  statute  of  limitations,  must  be  in 
writing. 

C.    Contracts  Not  Enforceable  Unless  in  Writing. 

(a)     Nature  and  object  of  Statute  of  Frauds. 

Sec.  82.  THE  STATUTE  OF  FRAUDS.  By  the  English 
Statute  of  Frauds,  and  similar  statutes  patterned  thereafter 
in  this  country,  certain  contracts  are  not  legally  enforceable 
unless  the  evidence  to  prove  them  is  a  writing  signed  by  the 
party  sought  to  be  charged,  or  in  case  of  contracts  of  sale 
or  personal  property,  unless  there  is  either  a  writing  or  a 
certain  part  performance. 

The  British  Parliament  in  1676  passed  a  statute  known 
as  the  "Statute  of  Frauds  and  Perjuries,"  or  more  usu- 
ally referred  to  simply  as  "The  Statute  of  Frauds."  This 
is  perhaps  the  most  famous  and  far-reaching  statute  not 
of  a  political  nature  in  all  English  jurisprudence.  It 
has  been  called  the  "adopted  child  of  the  common  law." 

The  statute  was  fairly  lengthy,  concerning  itself  with 
other  subjects  than  those  of  contract,  but  the  fourth 
section  of  the  statute  related  to  various  classes  of  con- 


American  Commercial  Law.  157 

tracts  therein  enumerated,  and  the  seventeenth  section 
to  contracts  of  sale  of  personal  property. 

The  requirement  of  the  statute  is  that  certain  contracts 
cannot  be  enforced  unless  in  writing  and  that  sales  of 
personal  property  cannot  be  enforced  unless  there  is 
a  writing,  or  a  certain  part  performance.  It  was  called 
the  Statute  of  Frauds  and  Perjuries  because  the  legis- 
lative motive  in  enacting  it  was  to  make  more  difficult 
perjured  claims  and  perjured  defenses  by  requiring  a 
certain  kind  of  proof.  But  if,  so  far  as  contracts  are 
concerned,  it  had  been  called  some  name  suggesting  a 
certain  kind  of  evidence,  it  would  be  less  likely  to  con- 
fuse the  student's  mind. 

The  "statute  of  frauds"  is,  because  of  its  title,  likely 
to  be  thought  of  as  a  statute  dealing  with  frauds  gen- 
erally, and  this  title  certainly  conveys  to  the  uninitiated 
no  suggestion  of  writing.  The  title  explains  the  reason 
for  the  enactment  of  the  statute  arising  out  of  the  be- 
lief that  suitors,  by  perjured  testimony,  either  affirming 
the  existence  of  contracts  that  did  not  exist,  or  deny- 
ing the  existence  of  those  that  did  exist,  were  accom- 
plishing fraud,  and  that  such  miscarriage  of  justice  could 
be  largely  prevented  by  requiring  that  certain  classes  of 
contracts  could  not  be  proved  unless  the  party  seeking  to 
enforce  such  a  contract  could  produce  a  writing  or  writ- 
ten memorandum  signed  by  the  other  party.  It  was  not 
considered  wise  to  carry  this  provision  to  all  contracts, 
but  only  to  certain  classes  thereof  which,  because  of  their 
peculiar  nature  or  importance,  were  likely  to  encourage 
false  swearing;  although,  it  is  true  that  some  judges 
have  pointed  out  that  the  statute  also  serves  the  purpose 
of  preventing  the  proof  of  cases  by  the  mistaken  mem- 
ory of  honest  men. 

This  statute  has  undoubtedly  performed  the  office  of 
preventing  much  fraud  and  perjury.     But  it  has  also 


158  The  Law  of  Contracts. 

resulted  in  great  injustice.  It  prevents  one  who  has  a 
good  case  from  proving  it  if  he  has  neglected  to  obtain 
the  evidence  required  by  the  statute,  even  though  he 
may  have  all  sorts  of  other  evidence,  and  even  though 
the  other  party  will  not  deny  the  contract,  but  simply 
insists  on  this  technical  proof  of  it.  And  many  judges 
have  said  that  it  has  caused  more  fraud  and  more  ''ti- 
gation  than  it  ever  prevented.  And  yet  it  has  a  him 
place  in  our  law,  and  very  likely  its  advantages  greatly 
outweigh  the  hardships.  It  has  been  adopted,  in  whole 
or  in  part,  in  all  of  our  American  States. 

There  are  two  sections  of  this  statute  relating  to  con- 
tracts,— the  fourth  and  the  seventeenth.  The  effect  of 
the  fourth  section  is  to  render  certain  contracts  unen- 
forceable unless  their  existence  can  be  proved  by  a  writ- 
ten memorandum  signed  by  the  party  sought  to  be 
charged.  The  effect  of  the  seventeenth  section  is  to  make 
unexecuted  contracts  for  the  sale  of  personal  property 
for  a  certain  price  or  upwards  unenforceable  unless  their 
existence  can  be  proyed  by  a  written  memorandum, 
signed  by  the  party  to  be  charged,  or  unless  there  has 
been  a  part  performance  of  the  contract.  This  section 
has  not  been  in  force  in  some  of  the  American  States, 
but  now  it  has  been  substantially  embodied  in  the  Uni- 
form Sales  Act  which  is  being  generally  adopted. 

Of  course  these  sections,  when  re-enacted  in  this  coun- 
try, do  not  necessarily  retain  those  numbers. 

Sec.  83.  TEXT  OF  THE  STATUTE  OF  FRAUDS.  The 
original  English  Statute  of  Frauds  provided  as  follows: 

"That  no  action  shall  be  brought  (i)  whereby 
to  charge  any  executor  or  administrator  upon  any 
special  promise  to  answer  damages  out  of  his  own 
estate;  (2)  or  whereby  to  charge  the  defendant 
upon  any  special  promise  to  answer  for  the  debt, 


American  Commercial  Law.  159 

default,  or  miscarriage  of  another  person;  (3)  or 
to  charge  any  person  upon  any  agreement  made 
upon  consideration  of  marriage ;  (4)  or  upon  any 
contract  for  the  sale  of  lands,  tenements  or  here- 
ditaments, or  any  interest  in  or  concerning  them ; 
(5)  or  upon  any  agreement  that  is  not  to  be  per- 
formed in  the  space  of  one  year  from  the  making 
thereof ;  unless  the  agreement  upon  which  such 
action  shall  be  brought,  or  some  memorandum  or 
note  thereof,  shall  be  in  writing  and  signed  by  the 
party  to  be  charged  therewith,  or  some  other  per- 
son thereunto  by  him  lawfully  authorized."  (4th 
Section.) 

"That  no  contract  for  the  sale  of  any  goods, 
wares,  and  merchandise,  for  the  price  of  ten  pounds 
sterling  or  upwards,  shall  be  allowed  to  be  good, 
except  the  buyer  shall  accept  part  of  the  goods  so 
sold,  and  actually  receive  the  same,  or  give  some- 
thing in  earnest  to  bind  the  bargain,  or  in  part 
payment,  or  that  some  note  or  memorandum  in  writ- 
ing of  the  said  bargain  be  made  and  signed  by  the 
parties  to  be  charged  by  such  contract,  or  their 
agents  thereunto  lawfully  authorized."  (i/th  Sec- 
tion.) 

Sec.  84.  THE  STATUTE  RELATES  TO  THE  EN- 
FORCEMENT, NOT  THE  VALIDITY  OF  CONTRACTS. 

The  Statute  of  Frauds  does  not  have  the  effect  of  preventing 
the  formation  of  contracts  included  within  it  without  com- 
plying with  its  provisions  but  merely  furnishes  a  requisite  in 
the  manner  of  proof,  if  the  adversary  relies  upon  and  pleads 
the  Statute  of  Frauds. 

It  is  well  established  that  the  English  statute  of 
frauds  and  its  patterns  in  this  country  do  not  require 
writing  as  an  element  in  the  formation  of  the  contract. 


i6o  The  Law  of  Contracts. 

It  merely  requires  that  when  a  suit  is  instituted  upon 
an  alleged  contract  within  the  statute  of  frauds,  the  ad- 
versary party  may  plead  the  statute  as  a  defense  and 
thus  require  the  plaintiff  to  produce  some  written  evi- 
dence which  sets  forth  the  contract,  and  signed  by  the 
party  to  be  charged  thereon. 

Example  ^6.  A  agrees  to  sell  goods  to  B  under  an 
oral  agreement.  B  decides  not  to  take  the  goods  and 
writes  a  letter  to  A  telling  him  so  and  sufficiently  de- 
scribing the  contract  to  satisfy  the  statute  of  frauds. 
He  signs  the  letter.  A  sues  B.  B  pleads  statute  of 
frauds.  A  can  comply  with  the  statute,  and  prove  the 
contract,  by  producing  B's  letter,  ^^c 

The  justice  of  this  is  apparent.  If  a  man  makes  a 
contract  he  ought  to  perform  it.  The  statute  was  not  to 
help  him,  but  to  prevent  fraud  and  perjury.  Therefore, 
if  the  writing  signed  by  him  is  produced,  it  would  be 
the  merest  of  technicalities,  and  a  perversion  of  the  stat- 
ute to  say  he  could  not  be  held  because  the  contract  was 
not  made  in  writing. 

Because  of  this  view  of  the  statute,  it  is  generally 
held: 

(i)  The  statute  is  not  a  defense  unless  affirmatively 
pleaded. 

(2)  It  does  not  apply  to  executed  contracts. 

(3)  The  writing  may  have  been  made  at  any  time, 
even  after  suit  begun. 

(b)     The  cases  zvithin  the  statute. 

Sec.  85.  PROMISES  OF  EXECUTORS  AND  ADMIN- 
ISTRATORS.   A  promise  of  an  executor  or  administrator  to 

126.  Bird  V.  Munroe,  66  Me.  ZZ7' 


American  Commercial  Law.  i6i 

charge  himself  personally  with  the  payment  of  the  debts  of 
the  decedent's  estate  cannot  be  enforced  unless  there  is  writ- 
ten evidence  of  such  promise  signed  by  the  party  sought  to 
be  charged. 

There  is,  of  course,  no  duty  upon  an  executor  or  ad- 
ministrator to  pay  the  debts  of  the  decedent's  estate  out 
of  his  own  personal  estate.  If,  however,  he  takes  it  upon 
himself  to  be  personally  bound  for  such  debts,  the  law 
requires  the  proof  of  any  such  engagement  to  be  in  writ- 
ing and  signed.  Not  very  much  litigation  has  been  oc- 
casioned in  reference  to  this  provision. 

Sec.  86.  PROMISES  TO  ANSWER  FOR  THE  DEBT, 
DEFAULT,  OR  MISCARRIAGE  OF  ANOTHER  PER- 
SON. A  promise  of  any  person  to  answer  for  the  debt,  de- 
fault, or  miscarriage  of  another  person  cannot  be  enforced 
unless  there  is  written  evidence  of  such  promise,  signed  by 
the  person  sought  to  be  charged. 

This  provision  of  the  statute  contemplates  a  debt  or 
liability  from  A  to  B,  and  C's  promise  to  the  creditor,  B, 
to  pay  if  A  does  not.  C  is  a  guarantor,  and  his  promise 
may  arise  either  at  the  inception  of  the  debt,  or  there- 
after. It  must,  of  course,  be  supported  by  a  considera- 
tion to  be  enforcible  whether  in  writing  or  not,  but  it  is 
not  necessary  that  the  guarantor  get  any  benefit  or  ad- 
vantage for  making  the  offer,  for  the  consideration  may 
consist  in  the  detriment  to  the  creditor  in  extending  the 
credit  upon  the  strength  of  the  guaranty,  or  if  the  credit 
has  already  been  extended  may  consist  in  granting  fur- 
ther definite  time  upon  it  or  any  other  right  or  thing 
parted  with  by  the  creditor  in  return  for  such  guaranty. 
This  provision  of  the  statute  contemplates  a  main  or 
original  debt  by  A  which  he  ought  to  pay  and  another's 
Bays — II 


i62  The  Law  of  Contracts. 

promise  to  pay  it  if  the  debtor  does  not.     It  is  held  not 
to  apply 

(a)  To  any  case  in  which  the  alleged  guarantor  is 
in  fact  the  main  debtor. 

(b)  To  any  case  in  which  the  promise  to  pay  is  not 
made  to  the  creditor  but  to  the  debtor. 

Example  ^J.  A  desiring  to  get  credit  from  B  is  re- 
quested to  furnish  a  sponsor.  C  thereupon  promises  B 
that  he  will  pay  if  A  does  not.  If  this  promise  is  not 
in  writing  and  signed  by  C,  C  when  sued  has  a  complete 
defense  in  the  statute  of  frauds. ^-'^ 

Example  38.  If  in  the  above  case  C  had  said  to  B, 
"Let  A  have  goods  and  charge  to  my  account"  or  "look 
to  me  for  payment,"  C  would  have  made  the  debt  his 
own  and  C  could  be  compelled  to  pay  whether  his  prom- 
ise was  in  writing  or  oral.^^^ 

Sec.  87.  PROMISES  IN  CONSIDERATION  OF  MAR- 
RIAGE. A  promise  in  consideration  of  marriage  cannot  be 
enforced  unless  there  is  written  evidence  thereof,  sign^ed  by 
the  party  sought  to  be  charged. 

This  provision  refers  to  ante-nuptial  agreements  to  con- 
vey property  in  consideration  of  the  marriage.  It  does 
not  refer  to  mutual  promises  to  marry,  which  are  bind- 
ing, though  oral.  An  oral  promise  to  convey  real  estate 
would  be  unenforceable  both  by  this  provision  and  the 
one  relating  to  real  estate. 

Sec.  88.  CONTRACTS  FOR  THE  SALE  OF  LANDS 
OR    ANY    INTEREST   IN    OR    CONCERNING    THEM 

127.  Jones  V.  Cooper,  i  Cowp.  227. 

128.  Marr  v.  B.  C.  R.  &  N.  R.  Co.,  121  la.  117. 


American  Commercial  Law.  163 

(EXCEPT  SHORT  TERMS  LEASES).  These  contracts 
cannot  be  enforced  unless  there  is  written  evidence  of  such 
contracts  signed  by  the  party  sought  to  be  charged. 

This  provision  applies  to  contracts  which  create  an 
interest  or  estate  in  anything  which  is  to  be  classed  as 
real  estate  or  distinguished  from  personal  property,  ex- 
cept short  term  leases,  as  for  one  year,  which  are  now 
generally  excluded  by  the  American  statutes.  The  most 
obvious  application  is  to  contracts  to  buy  or  sell  a  piece 
of  real  estate,  as  a  farm,  a  city  lot,  etc.,  but  it  also  ex- 
tends to  any  contract  to  convey  or  create  an  interest  in 
anything  which  may  be  classed  as  real  estate.  Thus  it 
would  apply  to  any  contract  to  mine  ore,^^'*  to  create 
an  easement,  to  sell  an  old  house  to  be  removed,^-^"^  etc. 
Note,  however,  that  it  is  immaterial  if  the  contract  re- 
fers to  something  which  is  nozv  real  estate,  if  before  the 
sale  or  creation  of  the  interest  is  to  arise,  it  must  be 
converted  by  the  seller  into  personal  property.  Thus, 
a  right  to  mine  ore  in  the  land  of  another  would  be  un- 
enforceable unless  in  writing.  But  if  A  contracts  to  sell 
B  I, OCX)  tons  of  coal,  this  is  a  contract  to  sell  personal 
property,  though  it  may  happen  that  when  the  contract 
is  made  the  coal  is  unmined  and  is  therefore  real  estate. 
Such  a  contract  to  sell  coal  might,  however,  be  unen- 
forceable by  reason  of  the  section  in  reference  to  sales  of 
personal  property.  Yet  that  section  might  not  apply,  for 
sales  of  personal  property  are  good  without  writing,  if 
a  payment  has  been  made  or  a  part  of  the  goods  deliv- 
ered and  accepted.  So  in  some  states  the  provision  in 
reference  to  sales  of  personal  property  is  not  in  force. 

Crops  which  are  planted  and  mature  annually  are  re- 

129.  Entwhistle  v.  Henke,  211  Illinois  Reports,  27Z- 

130.  Meyers  v.  Schemp,  67  Id.  469. 


164  The  Law  of  Contracts. 

garded  as  personal  property  in  this  regard,  and  an  oral 
sale  of  them  is  enforceable  so  far  as  this  provision  of  the 
statute  is  concerned. ^^^  Thus,  if  A  orally  agrees  to  sell 
B  all  his  standing  corn,  this  is  enforceable  whether  A  or 
B  is  to  cut  the  corn  and  take  it  away. 

Sec.  89.  CONTRACTS  THAT  CANNOT  BE  PER- 
FORMED WITHIN  A  YEAR  FROM  THE  MAKING 
THEREOF.  These  contracts  cannot  be  enforced  unless 
there  is  written  evidence  of  them  signed  by  the  party  sought 
to  be  charged. 

This  provision  relates  only  to  those  contracts  which  by 
their  express  terms  or  by  their  inherent  nature  cannot 
be  performed  within  a  year  from  the  time  of  their  mak- 
ing. It  is  decided  that  if  the  contract  may  be  performed 
within  the  year,  though  the  probability  be  remote,  this 
provision  does  not  apply  and  the  contract  is  enforceable 
though  oral.  In  such  a  case  it  is  immaterial  that  the 
performance  as  a  matter  of  fact  does  take  longer  than 
a  year.  132  An  illustration  will  make  this  plain.  Thus 
suppose  that  A,  for  a  certain  sum  of  money  to  be  paid 
to  him  by  B,  by  oral  contract  agrees  to  support  B  the  re- 
mainder of  B's  life.  B  is  sixty  years  of  age  and  in  fair 
health.  This  contract  may  be  enforced,  though  not  in 
writing,  for  B  may  die  within  the  first  year.  The  fact 
that  B  does  actually  live  twenty  years  longer  does  not 
make  any  difference.  On  the  other  hand,  A  employs  B 
to  work  for  him  fifteen  months.  There  must  be  written 
evidence  of  this  contract,  and  if  either  A  or  B  breaks 
the  contract  he  cannot  be  charged  with  its  breach. 

Sec.  90.  CONTRACTS  FOR  THE  SALE  OF  GOODS, 
WARES     AND     MERCHANDISE     FOR    A     CERTAIN 

131.  Bull  V.  Griswold,  19  Ibid.  631. 

132.  MacElree  v.  Wolfersberger,  59  Kan.  105. 


American  Commercial  Law.  165 

PRICE  OR  UPWARDS.  These  contracts  in  many  jurisdic- 
tions cannot  be  proved  unless  there  is  written  evidence  of 
them  signed  by  the  party  sought  to  be  charged,  or  unless 
there  is  at  least  part  delivery  and  acceptance,  or  part  pay- 
ment. 

It  will  be  noticed  at  once  that  this  provision  of  the 
statute  differs  from  those  which  have  been  mentioned 
above,  in  two  main  particulars :  first,  that  it  does  not  ap- 
ply unless  the  price  reaches  a  certain  amount ;  and  second, 
it  is  enforceable  though  not  in  writing  if  there  has  been 
a  delivery  and  acceptance  of  the  goods,  or  part  thereof, 
or  payment  in  whole  or  part.  This  provision  is  not  in 
force  in  a  number  of  the  American  States,  but  in  the 
majority  of  them  it  is.^^s 

The  original  English  statute  of  frauds  related  to  the 
sale  of  goods,  wares,  and  merchandise  for  the  price  of 
ten  pounds  sterling  or  upwards.  In  this  country,  the 
limitation  as  to  price  varies,  although  the  commonest 
provision  is  fifty  dollars. 

For  an  elaboration  of  the  law  as  to  this  subject,  see 
The  Law  of  Sales  of  Personal  Property,  in  this  series. 

(c)     What  amounts  to  compliance  with  statute. 

Sec.  91.  THE  MEMORANDUM  AND  THE  SIGNA- 
TURE.  The  memorandum  and  signature  may  be  made  at 
any  time.  The  memorandum  need  not  be  formal  but  must 
sufficiently  identify  the  parties,  describe  the  subject  matter 
and  set  forth  the  terms,  but  the  consideration  may  usually  be 
proved  by  parol  evidence.    The  signature  may  be  any  name 

133.  See  Sales  in  this  series. 


i66  The  Law  of  Contracts. 

intended  as  a  signature  either  in  the  body  of  the  writing  or 
written  thereunder  and  made  by  the  party  or  his  agent. 

We  have  already  seen  how  the  writing  and  signature 
need  not  be  made  at  the  time  of  the  foitnation  of  the 
contract,  but  at  any  time  thereafter. 

The  entire  contract  must  appear  from  the  writing, 
except  the  consideration  which  in  many  states  may  be 
orally  proved.  Thus  the  writing  must  identify  the  sub- 
ject matter,  the  parties  and  state  the  terms ;  but  this 
may  all  appear  from  the  roughest  sort  of  a  memorandum, 
as  a  receipt,  and  the  writing  may  be  in  the  form  of  print, 
typewriting,  or  lead  pencil  memorandum. ^^^ 

The  signature  is  the  use  by  a  party  or  his  agent  of  a 
name  or  mark  to  express  his  acceptance  of  the  contract. 
It  may  be  his  true  name,  or  any  assumed  name,  or  any 
mark  intended  as  a  signature.  It  need  not  be  at  the 
bottom  of  the  writing,  but  anywhere  therein. 

Example  5p.  John  Smith  engages  in  business  as  "The 
Novelty  Store,  Unincorporated."  He  employs  Walter 
Jones  as  an  agent.  Walter  Jones,  as  agent,  makes  a 
contract  with  Harry  Wilson  which  comes  within  the 
statute  of  frauds,  reading  as  follows :  "The  Novelty 
Store,  Unincorporated,  hereby  promises,"  etc.,  and  is  not 
otherwise  signed.  This  is  a  sufficient  signature  to  bind 
John  Smith,  assuming  the  agent  had  authority,  real  or 
apparent,  to  make  this  particular  contract  for  his  prin- 
cipal.^^'* 

The  signature  of  the  party  sought  to  be  charged  is 
sufficient.  That  the  other  party  has  not  signed  is  unim- 
portant, if  in  fact  he  made  the  contract.     Thus  in  the 

134.  Clason  V.  Bailey,  14  Johns  (N.  Y.)  484. 

135.  United  Hardware  Furn.  Co.  v.  Blue,  59  Fla.  419. 


American  Commercial  Law.  167 

above  example  suppose  Harry  Wilson  sues  and  is  able 
to  produce  the  above  memorandum.  He  can  thereby 
supply  signed,  written  evidence  that  Smith  made  the 
contract.     The  purpose  of  the  statute  is  accomplished. 

Memorandum  and  Signature  May  Be  by  Agent.  The 
statute  expressly  recognizes  this,  but  undoubtedly  that 
would  be  the  implication  at  any  rate. 

The  agent  of  one  party  may  be  chosen  by  the  other 
party  as  his  agent  for  the  purpose  of  making  the  memo- 
randum and  the  signature.  This  is  recognized  as  the 
rule  in  two  classes  of  cases : 

First:  Where  the  agent  of  the  seller  is  an  auctioneer, 
such  auctioneer,  although  for  all  substantial  purposes  the 
agent  of  the  seller,  is  also  the  agent  of  the  buyer  for  the 
purpose  of  complying  with  the  statute.^^^ 

Second:  Where  the  agent  of  either  buyer  or  seller  is 
a  broker,  that  is,  one  who  makes  it  his  business  to  bring 
buyers  and  sellers  together,  he  is  the  agent  of  the  one 
who  employs  him,  but  for  the  limited  purpose  of  com- 
plying with  the  statute  of  frauds,  he  is  also  the  agent 
of  the  other  party. ^^'^ 

Sec.  92,  COMPLIANCE  BY  DELIVERY  AND  AC- 
CEPTANCE IN  SALES  OF  PERSONAL  PROPERTY. 
Evidence  of  a  contract  of  sale  of  personal  property  which  is 
not  in  writing  and  signed  may  consist  in  a  delivery  and  ac- 
ceptance of  such  property  or  a  part  thereof. 

The  17th  section  of  the  statute  of  frauds  and  the  sales 
act  does  not  require  signed  written  memorandum  if 
there  is  part  delivery  and  acceptance  of  the  property 
alleged  to  have  been  sold.  In  such  a  case  the  statute  is 
no  defense  although  there  is  no  writing. 

136.  Love  V.  Harris,  156  N.  C.  88,  36  L.  R.  A.  N.  S.  927. 

137.  Clason  v.  Bailey,  supra. 


i68  The  Law  of  Contracts. 

The  Delivery.  The  delivery  does  not  necessarily  re- 
quire a  removal,  but  any  surrender  of  authority  over  the 
property  in  favor  of  the  other,  as  the  delivery  of  a  key 
or  a  taking  charge  and  assuming  dominion  by  the  buyer 
pursuant  to  the  alleged  contract.^^^ 

The  Acceptance.  Acceptance  signifies  more  than  mere 
receipt.  It  signifies  a  receipt  accompanied  by  an  inten- 
tion to  retain.  Acceptance  may  be  by  carrier  for  some 
purposes,  as  to  accomplish  transition  of  title,  but  receipt 
by  a  carrier  is  not  acceptance  from  this  standpoint. ^•'^^ 

Sec.  93.  COMPLIANCE  BY  PAYMENT  OR  PART 
PAYMENT  IN  CASE  OF  SALES  OF  PERSONAL  PROP- 
ERTY.  Under  the  17th  section  of  the  Statute  of  Frauds  a 
contract  of  sale  is  enforcible  though  there  is  no  writing  or 
delivery  where  the  buyer  has  given  something  in  earnest  to 
bind  the  bargain  or  in  part  payment. 

Another  way  of  satisfying  the  statute  of  frauds  re- 
lating to  sales  of  personal  property  (the  seventeenth  sec- 
tion), is  in  payment  in  whole  or  part  of  the  purchase 
price  by  the  buyer  and  its  receipt  by  the  seller.^'*"  If 
this  is  proved  this  is  corroborative  evidence  of  the  fact 
that  a  contract  has  been  had  between  the  parties  although 
the  rest  of  it  must  be  proved  by  witnesses. 

The  entire  amount  need  not  be  paid ;  it  is  sufficient  if 
there  be  something  in  earnest  to  bind  the  bargain. 

Sec.  94.  CONTRACTS  FOR  "WORK  AND  LABOR" 
NOT  WITHIN  THE  STATUTE.  If  when  the  contract 
was  made  it  was  contemplated  that  the  seller  should  make  up 
for  the  buyer  the  goods  which  were  the  subject  matter  of 

138.  Shindler  v.  Houston,  i  N.  Y.  261. 

139.  United  Hardware  Co.  v.  Blue,  59  Fla.  419. 

140.  Wier  V.  Hudnutz,  115  Ind.  525. 


American  Commercial  Law.  169 

the  sale,  some  courts  held  that  this  was  not  a  contract  of 
sale  within  the  Statute  of  Frauds;  but  other  courts  held  that 
it  was  a  sale  notwithstanding  this  circumstance  and  some 
held  that  the  statute  did  not  apply  provided  the  goods  were 
to  be  made  up  to  the  special  order  of  the  buyer  and  were  not 
otherwise  kept  in  stock. 

If  A  orders  a  wagon  from  B  which  B  is  to  make  up 
from  his  own  material,  is  this  a  sale?  It  undoubtedly 
is,  and  as  much  so  as  though  the  wagon  is  already  made 
up  and  taken  away  by  A  at  the  time  of  the  bargain,  and 
the  law  of  sales  must  be  called  upon  to  govern  such  a 
transaction.  Now  the  17th  section  of  the  statute  of 
frauds  said  nothing  as  to  the  exclusion  of  such  a  trans- 
action from  its  operation,  yet  some  courts  regarding  the 
hardship  of  the  operation  of  the  statute  in  such  cases, 
especially  if  the  goods  were  to  be  made  up  specially  for 
the  buyer,  excluded  it  by  construction  through  the  sim- 
ple device  of  calling  such  a  contract  one  of  work  and 
labor  rather  than  one  of  sale.  Three  rules  developed :  '"^^ 
(i)  the  rule  of  those  courts  which  followed  the  statute 
literally  that  such  a  contract  was  one  of  sale  and  not 
enforcible  if  no  writing,  part  payment  or  part  delivery 
and  receipt;  (2)  the  rule  that  if  the  goods  were  to  be 
made  up  by  the  seller  the  statute  did  not  apply;  (3) 
the  rule  that  it  did  not  apply  if  the  goods  were  to  be 
made  up  by  the  seller  provided  they  were  made  up  on 
the  buyer's  special  order  and  were  not  fit  for  the  gen- 
eral market.  This  question  has  now  been  set  at  rest  in 
this  country  to  a  very  general  extent  by  the  adoption  of 
the  Uniform  Sales  Act.    See  next  section. 

Sec.  95.  THE  STATUTE  OF  FRAUDS  AND  THE  UNI- 
FORM SALES  ACT.    The  17th  section  of  the  Statute  of 

141.  Goddard  v.  Binney.  115  Mass.  450. 


I/O  The  Law  of  Contracts. 

Frauds  has  been  incorporated  in  the  Uniform  Sales  Act, 
which  provides  specifically  that  the  statute  shall  apply  to 
all  cases  whether  the  goods  are  to  be  made  up  or  not  unless 
being  ordered  to  be  made  up  they  are  not  fit  for  sale  to 
others  in  the  ordinary  course  of  the  vendor's  trade. 

The  statute  of  frauds  relating  to  sales  of  personal 
property  had  been  adopted  in  most  of  our  American 
States  and  has  been  reaffirmed  by  its  inclusion  in  the  Uni- 
form Sales  Act;  the  question  presented  by  the  last  sec- 
tion has  been  settled  by  a  definite  provision  in  that  act 
that  the  statute  must  be  comphed  with  by  signed  written 
memorandum,  or  by  part  delivery  and  acceptance  or  by 
part  payment  even  if  the  goods  are  yet  to  be  made  unless 
they  are  made  up  for  the  special  benefit  of  the  buyer, 
that  is,  are  not  stock  goods,  and  cannot  be  disposed  of 
on  the  general  market. 

Example  60.  A  hotel  company  orders  a  lot  of  dishes  to 
be  made  up  for  it  by  the  M.  Co.,  with  the  monogram  of 
the  buyer  thereon.  There  is  no  written  memorandum, 
no  part  payment,  and  no  receipt  of  the  goods  by  the 
buyer.    The  statute  is  not  a  legal  defense. 

D.    The  Parol  Evidence  Rule. 

Sec.  96.  THE  PAROL  EVIDENCE  RULE  DEFINED. 
The  parol  evidence  rule  is,  that  if  a  contract  is  reduced  to 
writing,  such  writing  is  the  evidence  of  the  contract  and 
therefore  not  subject  to  contradiction,  addition  or  variance 
by  oral  or  extrinsic  testimony. 

Parties  reduce  a  contract  to  writing  either  because  such 
is  the  requirement  of  the  law,  or  because  they  desire  it 
to  be  in  that  fomi. 

It  not  infrequently  happens  that  a  party  to  a  contract 
will  claim  that  prior  to  the  execution  of  his  contract  or 


American  Commercial  Law.  171 

at  the  time  thereof,  there  were  other  matters  agreed  upon 
which  were  not  set  forth  in  the  writing  which  he  now 
seeks  to  enforce.  For  instance,  suppose  Smith  sells  a 
jewelry  store  to  Brown  and  it  is  agreed  that  Brown  shall 
not  use  Smith's  name  and  shall  remove  the  signs  upon 
the  store,  and  it  is  so  stated  in  the  bill  of  sale,  but,  at  the 
time.  Brown  makes  the  point  that  he  does  not  wish  to  go 
to  the  extra  expense  of  new  signs  right  away,  and  Smith 
states  that  while  he  is  unwilling  to  give  Brown  the  right 
to  use  his  signs,  he  will  do  the  right  thing  and  let  Brown 
use  the  signs  for  a  month.  The  next  day  Smith  demands 
that  Brown  pull  down  the  signs  and  stop  using  the  name. 
The  parol  evidence  rule  would  forbid  the  proof  by  Brown 
that  any  such  an  oral  agreement  was  made,  for  it  con- 
tradicts the  writing  that  was  made  between  the  parties 
as  the  expression  of  their  contract.  Notice  that  the  parol 
evidence  rule  is  a  rule  of  exclusion  of  evidence.  If  a 
court  considers  that  evidence  which  is  proffered  would 
violate  the  parol  evidence  rule,  it  will,  upon  objection 
by  the  other  side,  refuse  to  admit  such  evidence  in  the 
case.  Now,  such  a  rule  undoubtedly  works  injustice  in 
specific  instances,  but  it  serves,  nevertheless  in  other  in- 
stances to  prevent  the  injustice  of  the  proof  of  collateral 
agreements  that  were  never  made,  and  preserves  the  in- 
tegrity of  written  evidence,  which,  but  for  such  rule, 
would  not  serve  the  purpose  that  the  parties  and  the  law 
intend  it  shall  serve. 

Example  61.  A  by  contract  in  writing  agrees  to  fur- 
nish B  a  certain  quantity  of  cotton  upon  terms  stated.  B 
refuses  to  receive  cotton  sent  by  A  upon  the  ground  that 
A  agreed  to  deliver  cotton  grown  by  A  upon  his  own 
land.  A  brings  suit  and  B  offers  this  evidence.  A  ob- 
jects.    The  Court  refuses  to  admit  it  upon  the  ground 


172  The  Law  of  Contracts. 

that  it  would  add  to  and  vary  the  terms  of  the  written 
contract.^^^ 

Sec.  97.  PAROL  EVIDENCE  RULE  PERMITS  CON- 
TRACT PARTLY  IN  WRITING  AND  PARTLY  ORAL. 
The  parol  evidence  rule  does  not  prevent  a  contract  from  be- 
ing partly  oral  and  partly  in  writing  if  such  appears  to  have 
been  the  intention  of  the  parties  and  if  the  law  does  not  re- 
quire the  entire  contract  in  question  to  be  in  writing. 

We  have  said  that  the  parol  evidence  rule  forbids  the 
alteration  of  a  written  contract  by  any  additions  thereto 
by  oral  proof.  But  consistently  with  that  we  may  still 
have  a  contract  a  part  of  which  only  was  intended  to  be 
put  in  writing,  the  rest  being  oral.  In  such  a  case  the 
parol  evidence  rule  applies  to  the  part  that  was  put  in 
writing  and  such  part  cannot  be  added  to  by  the  intro- 
duction of  oral  testimony,  although  the  other  part  that 
the  parties  intended  to  be  but  oral  may  be  proved  in 
connection  with  the  written  part.  We  assume  here,  of 
course,  that  the  law  does  not  require  the  entire  con- 
tract to  be  in  writing.  How  do  we  know  whether  it  was 
intended  to  put  an  entire  contract  in  writing  or  not? 
If  the  defendant  says  that  he  wants  to  prove  some  ad- 
ditional utterances  that  were  agreed  upon  at  the  time 
qualifying  what  was  said  in  the  writing,  why  does  this 
not  make  a  case  of  a  contract  partly  in  writing,  partly 
oral?  We  must  look  to  the  contract  and  the  circum- 
stances to  answer  that.  If  it  appears  therefrom  as  a 
reasonable  conclusion  that  the  writing  was  meant  to  be 
the  permanent  memorial  and  evidence  of  their  agree- 
ment, or  of  some  particular  part  thereof,  then  the  con- 

142.  Forsyth  Mfg.  Co.  v.  Castlen,  112  Ga.  199. 


American  Commercial  Law.  173 

tract,  or  that  part  thereof,  cannot  be  added  to  or  con- 
tradicted by  proof  of  other  things  agreed  upon  at  the 
same  time  that  would  change  the  situation  between  the 
parties.  In  a  contract  orally  made  a  note  may  be  given. 
The  note,  as  a  note,  cannot  be  changed  by  parol  evi- 
dence, but  the  rest  of  the  agreement  can  be  proved. ^"*'* 
The  maker  cannot  show  that  it  was  agreed  that  the 
rate  of  interest  should  be  different  from  that  stated  in 
the  note,  or  that  he  should  have  further  time  than  that 
therein  provided.  And  it  is  usually  not  difficult  to  tell 
whether  the  writing  is  complete  so  as  to  permit  no  fur- 
ther proof. 

Sec.  98.  PAROL  EVIDENCE  RULE  PERMITS 
PROOF  OF  CUSTOMS.  Customs  that  must  have  been  in- 
tended by  the  parties  to  govern  their  contract  are  a  part  of 
it  and  can  be  proved  to  explain  the  terms  of  a  written  con- 
tract. 

A  custom  or  usage  of  such  general  nature  that  the 
parties  must  have  contracted  in  reference  to  it  can  be 
proved  to  explain  the  written  terms  used  by  them.  The 
parol  evidence  rule  does  not  forbid  such  proof  because 
the  parties  are  not  by  such  proof  seeking  to  add  to  or 
\ary  the  contract  but  merely  to  show  in  what  sense  the 
terms  were  used.^'*'* 

Sec.  99.  EVIDENCE  NOT  FORBIDDEN  BY  PAROL 
EVIDENCE  RULE.  A  party,  notwithstanding  the  parol 
evidence  rule,  may  show  (1)  a  subsequent  alteration  of  a 
written  contract  by  oral  agreement;  (2)  fraud,  duress,  undue 

143-  Id. 

144.  Walls  V.  Bailey,  49  N.  Y.  464, 


174  The  Law  of  Contracts. 

influence;  (3)  mistake  preventing  contract;  (4)  clerical  error 
in  reducing  to  writing;  (5)  illegality. 

The  sole  object  of  the  parol  evidence  rule  is  to  pre- 
serve the  evidence  of  the  contract  which  the  law  required 
or  the  parties  must  be  taken  to  have  intended  to  be  the 
evidence  thereof.  The  rule  is  a  sensible  one  and  is  ap- 
plied in  a  common  sense  way.  In  the  following  situa- 
tions oral  evidence  may  be  introduced  in  reference  to 
a  written  contract  for  the  purposes  indicated : 

(a)     Subsequent  alteration  of  written  contract  by  oral 
agreement. 

Parties  to  a  written  agreement  may  afterwards  change 
it  by  oral  agreement.  (By  the  common  law  a  contract 
under  seal  could  not  be  altered  except  by  agreement  un- 
der seal,  but  this  was  not  because  of  the  parol  evidence 
rule.) 

(b)     Oral  proof  of  circumstances  rendering  contract 
voidable. 

Fraud,  duress,  undue  influence  may  be  shown  to  avoid 
a  written  contract. 

Example  62.  A  by  fraudulent  representations  per- 
suades B  to  enter  into  a  written  contract  to  buy  a  farm. 
B  may  show  the  fraud  for  the  purpose  of  withdrawing 
from  the  contract  because  of  the  fraud. 

(c)     Mistake  preventing  contract. 

Referring  to  the  former  pages  in  which  this  subject 
was  discussed,  we  may  now  note,  further  that  such  seem- 


American  Commercial  Law.  175 

ing  contracts,  non-existent  because  of  mistake,  may  be 
so  shown  to  be  by  oral  evidence  notwithstanding  they 
may  have  been  in  writing, 

(d)     Clerical  error  in   reducing  to  writing. 

Example  6s.  A  applies  to  the  X  Insurance  Company 
for  insurance  upon  his  house  against  the  contingency  of 
fire.  The  agent  for  the  X  Company  looks  over  the  house 
and  makes  a  rate  upon  it,  and  thereupon  A  takes  out  a 
policy.  The  house  is  No.  10  Main  Street,  but  the  policy 
reads  100  Main  Street.  Upon  a  proper  showing  A  can 
recover  upon  this  policy  in  case  of  fire,^'*^ 

(e)     Illegality. 

A  contract  legal  superficially  may  be  shown  to  be  really 
intended  by  the  parties  thereto  to  have  an  illegal  purpose 
and  thus   defeated. ^-^^ 

(f)     That  a  contract  was  delivered  on  condition. 

A  party  to  a  contract  may  show  by  parol  evidence  that 
though  it  was  signed  and  delivered  it  was  subject  to  an 
agreement  that  it  should  not  take  effect  except  upon  a 
condition  that  did  not  occur  and  therefore,  thnt  the  con- 
tract, for  example,  a  note,  did  not  become  effective. 

E.    Oral  and  Implied  Contracts. 

Sec.  100.  ORAL  CONTRACTS.  Any  contract  may  be 
oral  which  the  law  does  not  require  to  be  in  writing. 

The  general  rule  is-  that  any  contract  may  be  oral  (or 
implied)   if  some  statute  does  not  require  it  to  be  in 

145.  German  F.  Ins.  Co.  v.  Gueck,  130  111.  345,  23  N.  E.  112. 

146.  Muskogee  Land  Co.  v.  MuUins,  165  Fed.  179. 


176  The  Law  of  Contracts. 

writing.^^'^  An  oral  contract  is  of  equal  dignity  with 
any  simple  written  contract,  but  the  evidence  of  course, 
is  not  so  satisfactory  or  enduring. 

Sec.  101.  CONTRACTS  IMPLIED  IN  FACT.  A  con- 
tract implied  in  fact  is  a  contract  the  evidence  of  which  con- 
sists in  the  circumstances  which  show  forth  a  contractual 
intention. 

Actions  may  bespeak  a  contract.  Such  a  contract  we 
speak  of  as  implied.  Usually,  however,  an  entire  con- 
tract is  not  implied,  but  merely  some  part  thereof. 

When  will  circumstances  indicate  the  existence  of  a 
contract?  Whenever  we  may  say  that  the  relationship 
which  the  parties  bear  toward  each  other  is  more  rea- 
sonably explained  on  the  theory  of  contract  than  any 
other,  a  contract  will  be  implied.  In  other  words,  an 
implied  contract  is  a  true  contract  evidenced  by  the  cir- 
cumstances as  existing  between  the  parties. 

Example  64.  A  orders  coal  from  his  dealer  saying 
nothing  about  prices.  B  delivers  the  coal.  The  infer- 
ence here  is  that  A  intended  to  pay  and  B  to  receive  pay 
for  the  coal.  If  B  sues  for  the  price  he  could  recover 
upon  A's  implied  promise  to  pay  the  price  that  B  was 
then  getting  for  his  coal  from  his  customers — the  mar- 
ket price.  Here,  though  B's  promise  is  implied,  it  is 
just  as  real  as  though  he  uttered  the  words.  To  over- 
come this  inference  of  a  promise,  he  could  show,  if  such 
were  the  fact,  that  B  promised  to  make  him  a  present  of 
the  coal. 

As  we  have  heretofore  noticed,  the  law  will  not  sup- 
ply or  infer  terms  of  a  contract  merely  because  they  are 

147.  McKennon  v.  Winn,  i  Okla.  327. 


American  Commercial  Law,  177 

lacking.  An  agreement  to  sell  a  horse,  no  price  being 
mentioned,  would  simply  be  an  incomplete  contract,  as 
such  price  could  not  be  reasonably  inferred,  there  be- 
ing no  market  price  which  we  could  assume  the  buyer 
intended  to  pay. 

If  the  circumstances  are  more  readily  explainable  upon 
some  other  theory  than  that  of  contract,  no  contract  will 
be  implied. 

Example  6^.  A  stays  at  home  and  helps  his  father 
upon  the  farm,  while  his  two  other  sons  go  out  to  earn 
their  living  away  from  home.  The  father  dies.  There 
being  no  will  A  regards  it  as  unfair  that  there  should  be 
an  equal  division  and  puts  in  his  claim  against  the  estate 
for  his  labor.  The  courts  have  taken  the  position  that 
A's  filial  devotion  explains  his  conduct  rather  than  the 
theory  of  contraojt,  and  therefore  deny  his  claim.  A 
could  show,  however,  if  such  were  the  fact  that  there 
was  in  fact,  a  contract  between  himself  and  his  father, 
but  he  would  have  to  show  more  than  the  facts  stated, 
as  for  instance,  that  the  father  kept  an  account  of  the 
amounts  becoming  due  the  son,  or  that  the  son  kept  one, 
with  the  father's  knowledge  and  consent. ^^^ 

F.    Contracts  Implied  in  Law  or  Quasi-Contracts, 

Sec.  102.  DEFINITION  OF  QUASI  CONTRACT.  A 
quasi  contract  may  be  defined  as  a  legal  obligation  arising 
out  of  the  receipt  of  a  benefit  for  which  there  has  been  no 
actual  promise  to  pay  the  retention  of  which  without  com- 
pensation would  be  unjust.  The  law  therefore  raises  the 
obligation  to  pay  for  it. 

A  quasi  contract  is  not  a  contract  at  all,  and  may  in 
fact  exist  in  cases  in  which  there  is  not  only  no  re- 

148.  Hertzog  v.  Hertzog,  29  Pa.  St.  465. 
Bays— 12 


178        ,  The  Law  of  Contracts. 

semblance  to  a  contract,  but  under  circumstances  that 
completely  rebut  such  an  idea,  for  instance,  theft  cases. 
Why  is  it  then  that  we  use  the  word  quasi  contract  (like 
contract)  ? 

We  have  seen  that  there  is  civil  liability  where  one 
breaks  an  obligation  arising  out  of  agreement  (the  law 
of  contracts)  ;  and  civil  liability  where  one  breaks  an 
obligation  imposed  upon  him  by  the  general  law  (the 
law  of  torts),  and  this,  offhand,  might  seem  to  cover  the 
entire  field  of  civil  liability;  and  it  is  quite  thinkable 
that  in  the  development  of  the  law  of  torts,  that  which 
we  now  call  quasi  contract  might  have  been  included; 
and,  indeed,  we  will  see  that  under  some  circumstances 
one  may  sue  in  tort  or  quasi  contract  at  his  election. 

In  the  history  of  the  English  common  law  there  de- 
veloped the  theory  of  the  "form  of  action"  in  bringing 
suit,  whereby  any  suitor  had  to  find  a  form  of  action 
established  by  precedent  to  fit  his  case,  and  it  was  a 
rigid  adherence  to  this  theory  which  was  partially  re- 
sponsible for  the  development  of  courts  of  equity.  Two 
kinds  of  forms  of  action  to  enforce  personal  liability 
developed,  the  actions  ex  delicto  (tort  actions)  and  the 
actions  ex  contractu  (contract  actions)  and  there  were  a 
number  of  each.  Now,  if  one  had  received  a  benefit  that 
he  ought  to  pay  for,  a  refusal  to  pay  for  which  would 
result  in  his  unjust  enrichment  at  another's  expense,  the 
court  readily  saw  that  the  injured  person  should  have 
his  remedy — yet  there  was  no  formal  action  to  fit  his 
case.  So,  the  courts  permitted  his  suit  upon  the  theory 
that  out  of  the  receipt  of  the  benefit,  the  law  would 
imply  a  contract  to  pay  for  it,  and  thus  permitted  an 
action  ex  contractu  to  be  brought — and  so  came  to  be 
the  so-called  class  of  contracts  known  as  qu^si  contracts, 
or  contracts  implied  in  law  as  distinguished  from  con- 


American  Commercial  Law.  179 

tracts  implied  in  fact,  which  we  have  considered  in  the 
last  section  and  which  are  true  contracts. 

The  theory  was  extended  to  embrace  cases  in  which 
there  was  a  tortious  taking  of  property — cases  in  which 
a  tort  action  (trover)  could  be  brought,  or  the  plain- 
tiff could  "waive  the  tort  and  sue  in  contract," 

The  following  examples  will  illustrate  the  theory  of 
quasi  contract — note  that  the  contractual  intent  is  want- 
ing, yet  the  plaintiff  sues  on  a  quasi  contract  or  contract 
implied  in  law.  These  cases  may  be  divided  into  the 
following  classes : 

(1)  Cases  in  which  money  is  paid  or  other  property  parted 
with  under  a  mistake  of  fact. 

Example  66.  A  pays  money  to  B,  under  the  belief 
that  B  is  C.  A  can  recover  this  money  from  B,  although 
there  may  be  no  fraud  on  B's  part.  In  the  same  way  if 
A  through  error  of  calculation  overpays  his  debt,  he  may 
recover  the  over  payment.  In  these  cases,  the  recipient 
may  be  acting  in  perfect  honesty  so  that  he  cannot  be 
charged  with  a  tort,  and  there  is  no  actual  promise  to 
repay.     The  recovery  is  on  quasi  contractual  basis.^^" 

(2)  Benefit  conferred  under  contract  broken  by  plaintiff. 

If  a  contract  has  been  broken  by  plaintiff,  he  cannot 
sue  thereon.  But  suppose  he  has  conferred  benefits 
thereunder;  in  some  jurisdictions  he  is  allowed  to  sue 
on  quasi  contractual  basis.  See  subject  discussed  in 
chapters  on  Discharge  of  Contracts,  post. 

(3)  Property  parted  with  under  compulsion  and  protest. 

Example  6/.  A  telephone  company  charges  a  rate 
which  B  believes  to  be  excessive  and  unwarranted  under 

149.  Devine  v.  Edwards,  loi  111.  138. 


i8o  The  Law  of  Contracts. 

the  company's  franchise.  But  B  cannot  get  telephone 
service  without  paying  the  rate  demanded.  He  pays  un- 
der protest.  He  may  recover  upon  showing  that  the 
charge  was  illegal. ^^^^ 

(4)     Benefit  conferred  through  "dutiful  intervention." 

A  being  in  a  strange  locality  is  killed.  It  becomes 
necessary  for  someone  to  go  to  expense.  B,  an  under- 
taker, does  so.    He  may  recover  from  the  estate. ^^^ 

150.  Chicago  R.  Co.  v.  Chicago  Coal  Co.,  79  111.  121. 

151.  Patterson  v.  Patterson,  59  N.  Y.  574. 


PART  11. 
THE  INTERPRETATION  OF  CONTRACTS. 

CHAPTER  8. 

GENERAL  RULES  OF  INTERPRETATION. 

Sec.  103.  THE  GOVERNING  PRINCIPLE  IN  CON- 
STRUCTION OF  CONTRACTS.  The  purpose  of  construe* 
tion  of  contracts  is  to  discover  the  intention  of  the  parties. 

It  is  not  a  court's  business,  nor  has  it  power,  to  im- 
pose contracts  on  parties  before  it.  It  will  endeavor  to 
ascertain  what  obligations  the  parties  imposed  upon 
themselves.  To  accomplish  this  it  seeks  to  arrive  at  the 
parties'  intentions  as  expressed  in  their  acts  and  words. 
To  that  end  it  calls  to  its  aid  certain  rules  of  construc- 
tion which  are  suggested  by  experience  and  by  reason 
to  be  reliable  manifestations  of  the  real  intentions  of 
the  contracting  parties.  In  instances,  those  tests  may 
fail,  and  an  obligation  may  be  imposed  which  was  never 
intended  by  the  party,  as  where  he  has  ignorantly  or 
carelessly  used  expressions  from  which  his  true  intent 
does  not  appear.  Yet  every  one  must  know  that  others 
have  only  his  outward  expressions  whereby  to  read  his 
inward  meaning,  and  it  will  not  be  afterwards  permitted 
one  to  say  that  his  true  intention  was  contrary  to  his 
seeming  one  as  the  other  party  was  entitled  to  read  it. 

It  is  not  every  intention,  of  course,  which  the  law  will 
enforce.  This  has  been  noticed  in  respect  to  all  illegal 
agreements,  and  in  certain  instances,  where  the  contract 

i8i 


i82  The  Law  of  Contracts. 

is  not  illegal  yet  some  provisions  in  it  are  against  pub- 
lic policy.  These  provisions  will  be  ignored  and  not  en- 
forced. 

Sec.  104.  GENERAL  RULES  OF  CONSTRUCTION. 
The  chief  rules  whereby  the  courts  interpret  the  intentions 
of  the  parties  are  enumerated  below. 

(1)  While  to  discover  the  true  intention  of  the  parties 
is  the  chief  aim  of  the  court,  that  intention  is  to  be  gathered 
from  the  words  and  conduct  of  the  parties  in  making  the  con- 
tract and  a  secret  intention  not  so  expressed  is  of  no  avail. 

The  only  way  whereby  the  intention  of  the  parties 
may  be  read  is  from  the  language  employed,  or  in  cases 
of  implied  terms,  the  conduct  of  the  parties.  This  lan- 
guage or  conduct  is,  then,  the  only  source  to  which  one 
can  go  to  discover  the  intention.  Where  these  words  are 
unambiguous  and  plain,  the  courts  sometimes  say  that 
there  is  then  nothing  to  construe,  meaning  thereby  that 
as  the  parties  have  plainly  spoken,  the  only  thing  remain- 
ing to  be  done  is  to  enforce  the  contract,  as  expressed ; 
and  it  may  be  said,  generally,  that  the  rules  following 
have  no  application  where  from  the  unambiguity  of  the 
terms  no  question  can  arise  concerning  their  meaning. 

The  secret  intention  of  a  party,  where  it  differs  from 
his  seeming  intention  as  expressed  by  him,  is  immaterial 
and  he  cannot  afterwards  assert  what  his  secret  mean- 
ing was.  Of  course,  this  is  the  most  reasonable  of  rules 
and  in  fact  the  only  feasible  one  to  apply. 

(2)  Words  will  be  construed  in  their  ordinary  meaning, 
unless  it  can  be  shown  they  are  mutually  understood  by  the 
parties  to  have  an  especial  sense. 

If  the  words  are  shown  to  have  been  used  in  a  narrow 
technical  sense  or  in  some  especial  sense  under  the  cir- 


American  Commercial  Law.  183 

cumstances,  that  is  the  meaning  they  will  be  given ;  but 
otherwise  they  will  be  constraed  in  their  common  mean- 
ing. 

(3)  Each  party  will  be  presumed  to  have  used  the  words 
in  the  sense  in  which  under  the  circumstamces  he  should 
have  known  that  the  other  party  was  entitled  to  understand 
them. 

This  is  perhaps  only  saying  in  another  way  that  one 
cannot  afterwards  assert  a  secret  intention.  If  he  knows 
or  should  know  that  under  the  circumstances  the  other 
party  is  affixing  a  certain  meaning  to  the  words  em- 
ployed, he  cannot  afterwards  assert  that  he  used  them 
in  any  other  meaning. 

(4)  All  parts  of  the  contract  will  be  construed  together 
and  the  general  intent  thereby  asserted  will  govern  the  inter- 
pretation of  particular  words  and  phrases. 

The  contract  often  will  disclose  from  its  entire  word- 
ing an  evident  intent  which  it  is  necessary  to  read  in 
order  to  construe  parts  of  the  contract  which  are  am- 
biguously worded. 

(5)  That  construction  will  be  adopted  when  possible 
which  will  uphold  a  contract  rather  than  defeat  it. 

Where  two  constructions  are  possible,  one  of  which 
will  defeat  a  contract,  the  other  uphold  it,  the  latter 
construction  will  be  adopted. 

(6)  Every  part  of  a  contract  will  be  given  effect  where 
possible. 


184  The  Law  of  Contracts. 

(7)  The  words  employed  will  be  construed  most  strongly 
against  the  party  using  them. 

If  words  are  equally  applicable  to  both  parties,  of 
course,  this  rule  cannot  apply.  Often,  however,  one 
party  draws  the  contract  and  chooses  the  words,  and  if 
such  words  have  a  double  meaning  fairness  requires  a 
construction  in  favor  of  the  other  party. 

(8)  Written  words  will  prevail  over  printed  where  in  con- 
flict. 

The  sense  of  this  rule  is  apparent.  Parties  show  their 
real  intention  by  wril:ing  in  words,  even  though  by  mis- 
take or  oversight  they  do  not  erase  the  print. 

(9)  Punctuation  will  be  disregarded  where  it  interferes 
with  the  obvious  sense. 

(10)  When  the  meaning  is  ambiguous  the  construction 
placed  upon  the  contract  by  the  parties  is  admissible  to  show 
its  meaning. 

(11)  Where  a  custom  or  usage  is  shown  to  be  generally 
adopted  and  known,  the  words  will  be  considered  as  having 
been  used  in  the  sense  such  custom  or  usage  attaches  to 
them. 

If  a  custom  or  usage  is  shown  to  be  of  such  general 
and  well-known  nature  that  the  parties  must  be  con- 
sidered in  the  absence  of  contrary  proof  to  have  acted  in 
reference  to  it,  such  custom  or  usage  will  govern  the 
meaning  of  the  terms  used. 


CHAPTER  9. 

CONSTRUCTION    IN    RESPECT   TO    TIME   OF 
PERFORMANCE. 

Sec.  105.  IN  A  COURT  OF  LAW,  TIME  IS  OF  THE 
ESSENCE.  In  a  court  of  law  time  is  deemed  to  be  of  the 
essence  of  a  contract,  and,  unless  time  is  waived,  perform- 
ance must  be  within  the  time  stated,  or,  if  no  time  is  stated, 
then  within  a  reasonable  time. 

In  a  contract,  the  time  within  which  performance  is 
to  be  made,  may  be  either  expressly  stated  or  not.  If 
no  time  is  stated,  the  time  is  deemed  to  be  a  reasonable 
time.  In  a  Court  of  law  it  is  held  that  this  stated  time 
or  reasonable  time  (whichever  the  case)  is  of  the  es- 
sence of  the  contract.  This  means  merely  that  a  per- 
son to  a  contract  to  exonerate  himself  of  his  obligation 
of  performance  thereunder,  either  in  order  to  enable  him 
to  sue  for  his  compensation,  or  defend  against  a  charge 
of  non-performance,  must  show  that  he  performed  or 
tendered  performance  within  the  allotted  time ;  unless 
he  can  show  that  the  other  party  waived  performance 
within  that  time.  It  is  not  infrequent  that  a  party  to  a 
contract  does  waive  performance  and  accepts  or  shows 
himself  as  willing  to  accept  a  belated  performance. 

Example  68.  A  buys  goods  to  be  delivered  to  his 
place  on  Monday.  The  goods  arrive  on  Tuesday.  A  need 
not  accept. 

185 


i86  The  Law  of  Contracts. 

Sec.  106.  TIME  OF  PERFORMANCE  IN  A  COURT 
OF  EQUITY.  In  a  court  of  equity  time  is  not  the  essence 
unless  expressly  made  so,  or  unless  it  necessarily  results 
from  the  nature  and  circumstances  of  the  contract. 

In  a  court  of  equity  a  different  rule  prevails.  This 
would  seem  to  indicate  that  a  person  might  be  either  a 
performer  or  a  breaker  of  a  contract  according  to  the 
door,  whether  that  of  law  or  equity,  by  which  he  en- 
tered the  courthouse — but,  the  distinction  is  in  reality 
a  fundamental  one.  The  ordinary  mercantile  contract  is 
one  for  which  damages  are  regarded  as  an  adequate  rem- 
edy and  for  that  remedy  one  must  go  into  a  court  of 
law.  To  come  into  equity,  the  case  must  involve  the 
doctrines  or  demand  the  remedies  of  equity,  such  as  a 
foreclosure  of  a  contract  to  buy  real  property  because 
of  non-payment  of  installments,  foreclosure  of  mort- 
gages, specific  performance  of  contracts  to  sell  real  estate 
and  the  like,  and  in  equitable  cases,  the  rule  is  that  time 
is  not  the  essence,  unless  specifically  made  so,  or  unless 
there  is  some  element  in  the  contract  that  justice  re- 
quires that  it  shall  be  held  so.  And,  even  where  it  is  so 
provided,  there  are  maxims  of  equity  which  may  tend 
to  offset  it,  to  the  effect  that  he  who  seeks  equity  must 
do  equity,  equity  abhors  forfeitures,  and  so  on. 


CHAPTER  lo. 

INTERPRETATION   OF   PROVISIONS  AS  TO 
PENALTIES  OR  LIQUIDATED   DAMAGES. 

Sec.  107.    IN  EXPLANATION. 

Usually  in  contracts,  no  provision  ic  made  as  to  rights 
or  remedies  in  event  of  breach,  but  not  infrequently  the 
possibility  of  breach  is  contemplated,  and  provisions 
made  regarding  it.  The  law  supplies  remedies  in  the 
event  of  breach — will  the  court  permit  the  parties  to 
make  any  stipulation  changing  the  remedies  that  would 
otherwise  exist?  In  the  first  place  we  must  keep  cer- 
tain principles  in  mind.  Breach  of  a  contract  is  a  civil, 
not  criminal,  wrong,  and  the  law  does  not  punish  one 
for  breaking  a  contract,  but  merely  provides  remedies 
for  the  compensation  or  protection  of  the  parties  injured 
by  such  breach.  In  awarding  damages,  it  seeks  only  to 
award  compensation  whereby  the  breach  may  be 
amended,  and  the  law  will  not  permit  these  fundamental 
principles  to  be  subverted  by  the  parties  by  their  stipu- 
lations in  the  contract. 

Let  us  assume  that  we  have  a  case  in  which  it  is  pro- 
vided that  in  the  event  of  breach  by  one  of  the  parties 
he  shall  pay  the  other  the  sum  of  $500.00,  or  that  he 
shall  forfeit  $500  or  that  he  puts  up  $500  as  security  for 
the  performance  of  the  contract.  Now  we  have  the 
courts  saying  that  if  the  parties  intend  a  provision  of 
this  sort  to  be  one  for  the  payment  of  damages,  they 
will  so  enforce  it,  and  call  it  a  provision  whereby  the 
parties  have  in  the  contract  itself  liquidated  the  dam- 

187 


1 88  The  Law  of  Contracts. 

ages  in  the  event  of  its  breach;  but  if  the  parties  do  not 
so  intend  it  the  courts  will  not  so  enforce  it  and  will 
call  it  a  penalty.  This  language  seems  to  put  it  within 
the  power  of  the  contracting  parties  to  make  the  same 
sort  of  a  provision  either  enforcible  or  unenforcible  ac- 
cording as  they  express  their  intention  in  connection 
therewith.  But  this  is  not  the  true  explanation,  and 
the  failure  even  by  the  courts  themselves  to  appreciate 
the  true  meaning  has  led  to  confusion  and  erroneous 
results.  The  true  rule  is  this :  that  where  there  is  a 
provision  for  the  payment  of  money  in  the  event  of  a 
breach  of  a  contract,  and  the  parties  have  by  language 
used  by  them  made  possible  the  construction  that  such 
provision  is  intended  to  liquidate  the  damages  and  it 
furthermore  appears  that  they  have  made  the  provision 
as  a  real  attempt  to  estimate  the  damages  in  some  rea- 
sonable proportion  to  what  they  actually  will  be,  then 
such  a  provision  will  be  enforced,  but  if,  no  matter 
whether  they  call  the  provision  liquidated  damages  or 
not,  or  even  declare  it  to  be  their  intention  that  such 
sum  shall  be  considered  as  liquidated  damages,  they 
name  a  sum  with  apparent  arbitrariness  or  which  vio- 
lates all  rules  of  damages  and  despite  their  language  is 
really  a  penalty  in  its  nature,  then  their  true  intention 
is  to  provide  for  a  penalty,  and  as  penalties  do  not  fol- 
low breach  of  contract,  the  courts  will  not  enforce  such 
provision. 

The  provision  of  a  contract  for  liquidated  damages 
is  in  many  cases  eminently  wise  and  proper,  as  there 
are  many  cases  in  which  without  such  a  provision  an 
injured  party  sustaining  real  and  perhaps  great  dam- 
ages finds  them  either  immeasurable  or  at  least  very  hard 
to  measure  by  the  very  nature  of  his  case. 

If  the  provision  is  by  way  of  liquidated  damages,  it 
determines  the  damages  and  therefore  prohibits  inquiry 


American  Commercial  Law.  189 

into  the  true  damages  whether  greater  or  less.  Its  pur- 
pose has  been  to  save  that  inquiry  and  the  courts  will 
so  enforce  it. 

Sec.  108.  DAMAGES  DIFFICULT  TO  ASCERTAIN 
AND  AMOUNT  REASONABLE.  If  the  damages  will  be 
difficult  to  ascertain  and  the  amount  is  reasonable,  a  provision 
in  a  contract  stated  to  be  by  way  of  liquidated  damages,  will 
be  so  construed. 

If  the  damages  are  difficult  to  ascertain  and  the  sum 
is  stated  to  be  payable  as  damages,  and  is  not  unreason- 
able in  amount,  it  will  be  so  enforced. 

Example  6p.  W  agreed  to  complete  a  grand  stand  for 
a  race  course  by  a  certain  day,  to  cost  $i33,cxX).oo,  and  to 
pay  $icxD.oo  for  every  day's  delay  as  liquidated  dam- 
ages. Held,  that  the  plaintiff  could  recover  that  amount 
tor  every  day's  delay,  and  proof  of  actual  damages  not 
requisite,  the  sum  being  apparently  reasonable  from  the 
nature  and  extent  of  the  work.^^2 

Example  JO.  C  agreed  to  remove  a  house  a  distance 
of  three  feet  at  a  cost  of  about  $icxd.oo,  and  in  the  event 
of  failure,  to  pay  $500.00  "as  liquidated  and  ascertained 
damages."  In  a  suit  against  him  for  not  removing  the 
house,  Held,  that  this  sum  was  unreasonable  and  would 
be  considered  a  penalty  and  therefore  without  force,  and 
actual  damages  would  have  to  be  proved. ^^^ 

Sec.  109.  LARGER  SUM  THAN  DEBT  PAYABLE  IN 
EVENT  OF  DEFAULT.    If  the  parties  prescribe  that  upon 

152.  Wallis  Iron  Works  v.  Monmouth  Park  Ass'n,  55  N.  J.  L. 
132. 

153.  Condon  v.  Kemper,  13  L.  R.  A.  (Kan.)  671. 


I90  The  Law  of  Contracts. 

the  failure  to  pay  a  debt  a  larger  sum  shall  thereupon  accrue, 
this  is  unenforceable  as  being  a  penalty. 

If  $100.00  is  to  be  due  July  ist,  and  if  not  paid  on 
that  day,  then  $125.00,  this  is  a  penalty  no  matter  how 
the  parties  describe  it.  This  is  to  be  carefully  dis- 
tinguished from  a  case  of  discount,  as  where  $125.00  is 
due  on  July  ist,  but  if  paid  before  that  day,  a  ten  per 
cent  discount  will  be  allowed.  This  is  a  common  cus- 
tom of  merchants  under  the  discount  system.  The  dis- 
tinction is  that  in  the  latter  case  $125.00  is  the  debt, 
while  in  the  other,  $100.00  is  the  debt,  and  a  penalty 
is  added  for  its  non-payment. ^^^ 

Sec.  110.  CERTAIN  SUM  PAYABLE  FOR  BREACH 
OF  ANY  OF  SEVERAL  COVENANTS  OF  VARYING 
IMPORTANCE.  If  a  sum  is  stated  to  be  payable  for  breach 
of  any  promise  in  a  contract,  whether  relatively  more  or  less 
important,  the  provision  is  a  penalty. 

Example  71.  A  leased  a  mine  from  B  and  agreed  to 
indemnify  B  against  all  damages  for  injury  to  neighbor- 
ing lands,  to  use  the  water  in  certain  ways,  to  pay  a  cer- 
tain royalty,  to  fill  up  excavations,  to  use  a  certain  road 
and  to  keep  gates  shut  and  in  repair,  and  for  breach  of 
any  of  these  to  pay  B  a  certain  amount.  Held,  a  pen- 
alty, i^s 

Sec.  111.  FORFEITURE  OF  AMOUNTS  PAID.  If 
sums  are  paid  by  way  of  deposit,  or  in  part  payment,  and  a 
provision  is  made  that  these  are  to  be  retained,  in  case  of 

154-  Goodyear  v.  Selz,  157  111.  186. 

155-  Keck  v.  Bieber,  148  Pa.  St.  645. 


American  Commercial  Law.  191 

default,   they   constitute   liquidated    damages   unless    unrea- 
sonable. 

Frequently  where  deposits  are  made,  as  on  contracts 
to  buy  real  estate,  or  on  installment  contracts,  it  is  pro- 
vided that  the  sum  or  sums  paid  may  be  retained  as 
liquidated  damages.  These,  if  not  unreasonable,  are  up- 
held ;  if  unreasonable  they  will  be  treated  as  penalties.^^® 

156.  Advance  Amusement  Co.  v.  Franke,  268  111.  579. 


PART  III. 

OPERATION  OF  CONTRACTS. 

CHAPTER  II. 

OPERATION  AS  TO  PARTIES 

Sec.  112.  GENERAL  RULE.  A  contract  operates  to  con- 
fer upon  the  parties,  and  only  upon  the  parties,  rights  and 
obligations  according  to  its  tenor. 

We  have  discussed  the  formation  of  the  contract,  and 
its  interpretation.     Now  we  shall  consider  its  operation. 

We  may  state  the  general  rule  as  to  its  operation  in 
a  few  words.  A  contract  operates  to  confer  upon  the 
parties  to  it,  and  only  upon  them,  rights  and  obligations 
as  provided  in  the  contract.  No  other  person  can  be 
bound  by  the  contract  or  assert  rights  upon  it.  To  this 
general  rule  there  are  notable  exceptions.  They  are  no- 
ticed in  the  following  chapters. 

How  the  contract  operates  as  far  as  its  terms  are  con- 
cerned, we  necessarily  consider  in  the  subjects  of  forma- 
tion of-  contract,  construction  of  contract,  and  discharge 
of  contract.  Hence,  no  separate  consideration  is  neces- 
sary here. 


192 


CHAPTER  12. 

BENEFICIARIES   TO    CONTRACTS. 

Sec.  113.  GENERAL  STATEMENT.  One  who  is  not 
a  party  to  a  contract,  but  who  benefits  thereby,  cannot  sue 
upon  it  at  all  in  some  jurisdictions,  but  in  the  majority  may 
sue  provided  he  comes  within  rules  that  are  variously  stated 
in  different  cases. 

The  rights  of  one  who  is  a  beneficiary  of  a  contract, 
but  no  party  thereto,  has  occasioned  considerable  diffi- 
culty and  different  decisions.  The  theory  of  contract  is 
that  it  is  purely  an  individual  matter  governed  by  agree- 
ment between  the  parties.  But  when  it  benefits  others, 
frequently  an  injustice  would  result  if  such  beneficiaries 
could  not  enforce  it. 

Sec.  114.  INCIDENTAL  BENEFICIARY  CANNOT 
SUE.  One  who  is  merely  an  incidental  beneficiary  cannot 
sue  no  matter  how  great  the  incidental  benefit  may  be. 

If  the, benefit  is  merely  incidental,  no  matter  how  great, 
the  beneficiary  has  no  right  to  enforce  the  performance 
of  the  contract.  It  is  not  .uncommon  for  strangers  to 
take  a  decided  benefit  from  the  performance  of  some 
contract  made  by  others.  But,  if  the  parties  chose  to 
rescind  the  contract,  or  if  one  refuses  to  go  ahead,  and 
the  other  will  not  force  him,  one  who  would  have  bene- 
fited thereby  can  do  nothing.  ^^''' 

157.  Pennsylvania  Steel  Co.  v.  New  York  City  R.  Co.,  198  Fed. 

721. 

193 

Bays — 13 


194  The  Law  of  Contracts. 

Sec.  115.  BENEFICIARY  MAY  SUE  WHEN.  If  the 
contract  is  intended  primarily  for  the  beneficiary's  benefit, 
he  may  sue. 

The  doctrine  of  the  courts  that  a  beneficiary  may  sue 
has  been  variously  stated  and  variously  applied.  No 
general  rule  may  be  laid  down  which  would  be  accurate 
and  comprehensive  of  all  the  cases.  But  the  doctrine, 
more  or  less  stringently  applied,  is  in  force  in  most  juris- 
dictions. It  is  applied  where  the  contract  is  made  pri- 
marily for  another's  benefit,  and  especially  where  a  con- 
tract is  made  by  which  assets  pass  upon  which  a  third 
person  has  an  equitable  right,  as  a  sale  of  a  business 
and  a  promise  by  the  buyer  to  pay  the  existing  debts. 
A  creditor  may  sue  (in  most  jurisdictions),  on  such  a 
contract. 

Example  72.  Holly  loaned  defendant  $300.00,  which 
was  the  sum  that  Holly  owed  plaintifif.  Defendant,  as 
a  part  of  the  contract,  agreed  with  Holly  to  repay  the 
$300.00  to  plaintiff.  Plaintiff  sued  defendant  and  it  was 
objected  that  plaintiff  had  no  contract  with  defendant. 
But  plaintiff  was  allowed  a  recovery  as  beneficiary.^^^** 

Example  73.  A  sells  his  business  to  B,  who  as  a  part 
of  the  consideration  assumes  the  payment  of  outstanding 
debts.     Creditors  may  sue  on  this  agreement. ^^^ 

158.  Lawrence  v.  Fox,  20  N.  Y.  268. 

159.  Snell  V.  Ives,  85  111.  279. 


CHAPTER  13. 
ASSIGNMENT  OF  CONTRACTS. 
Sec.  116.    GENERAL  STATEMENT. 

The  transfer  of  something  of  an  incorporeal  nature 
is  accompHshed  by  assignment.  Assignment  may  sig- 
nify (i)  a  sale;  (2)  a  pledge  to  secure  a  loan;  (3)  a 
gift;  (4)  a  transfer  for  some  special  purpose. 

In  the  law  of  contracts  we  must  ask  to  what  extent 
one  may  assign  his  rights  and  obligations  to  another. 
Obviously  this  introduces  the  question  whether  the  ad- 
versary party  to  the  contract  consents  or  doesn't  con- 
sent. If  there  is  a  contract  between  A  and  B  and  B 
with  A's  consent  assigns  to  C,  the  assignment  is  ef- 
fectual to  transfer  to  C  whatever  the  assignment  pur- 
ports to  cover.  But  if  A's  consent  is  lacking,  to  what 
extent  may  B  assign?  This  is  the  problem  of  the  cases. 
In  the  following  topics  upon  the  subject  of  what  may  be 
assigned  let  us  therefore  assume  that  the  consent  of  the 
adversary  party  (A)  has  not  been  procured. 

We  know  that  B's  agreement  with  A  has  resulted  in 
mutual  obligations,  or  in  other  words,  that  A  owes  to 
B,  and  B  owes  to  A,  certain  obligations  and  that  what 
B  attempts  to  assign  to  C  must  necessarily  be  what  A 
owes  to  B  or  B  owes  to  A,  that  is,  his  right  against  A 
or  his  obligation  to  A. 

Can  B,  without  A's  consent  assign  his  rights  and  ob- 
ligations or  either  of  them? 

Now  we  must  remember  that  a  contract  is  an  agree- 
ment between  parties  who  have  chopf^n  each  other  for 

195 


196  The  Law  of  Contracts. 

reasons  of  their  own.  That  one  may  choose  with  whom 
he  will  contract  is  a  basic  principle  in  contract  law. 
Hence  it  would  seem,  to  begin  with,  that  there  could 
be  no  assignment  by  either  party  to  the  contract  with- 
out the  consent  of  the  other.  But  it  is  another  policy 
of  the  law  that  he  who  has  an  asset  of  any  kind  should 
be  able  to  traffic  in  it  if  he  thereby  does  not  unduly  dis- 
turb the  right  of  any  other  person.  And  it  is  apparent 
that  one  may  have  a  contractual  right  against  another 
the  delivery  of  which  he  may  direct  without  unduly  dis- 
turbing the  contractual  relationship  between  the  con- 
tracting parties ;  and  out  of  these  conflicting  policies  has 
resulted  the  law  that  one  may  assign  his  rights  under  a 
contract  without  the  consent  of  the  other  party  to  the 
contract  when  such  transfer  does  not  involve  the  per- 
sonality of  the  assignor  and  assignee,  as  we  shall  here- 
after notice. 

Sec.  117.  POWER  TO  ASSIGN  MERE  CONTRAC- 
TUAL RIGHTS.  A  contracting  party  may  assign  his 
rights  under  the  contract  when  such  assignment  does  not 
involve  the  credit,  skill  or  other  personality  of  the  assignor. 
His  rights  to  another's  personal  service  he  can  never  assign. 

If  one  has  a  right  under  a  contract  to  receive  money 
or  goods  upon  conditions  that  do  not  involve  his  credit, 
skill  or  other  item  of  personality,  he  may  assign  such  a 
right. 

Example  74.  A  assigns  to  L  his  right  to  receive  his 
salary  from  E.  E  must  honor  this  assignment  when  he 
receives  notice  thereof  from  L. 

In  the  illustration  the  real  contract,  one  of  service 
between  the  parties  is  not  affected. 

A  right  to  another's  services,  a  person  can  never  as- 


American  Commercial  Law.  197 

sign.    Thus  in  the  above  case  E  could  not  assign  to  an- 
other his  rights  to  A's  services. 

Sec.  118.  POWER  TO  ASSIGN  CONTRACTUAL  OB- 
LIGATIONS.  Generally  speaking,  there  is  no  power  to  as- 
sign contractual  obligations. 

One's  obligations  under  a  contract  he  can  not  assign 
because  he  could  thus  make  the  other  contracting  party 
look  to  one  for  the  rendition  of  obligations  with  whom 
he  did  not  contract  and  perhaps,  indeed  did  not  care  to 
contract. 

Example  75.  A  owes  B  a  sum  of  money,  A  cannot 
assign  this  obligation  to  C  without  B's  consent.  It  is 
true  that  C  by  contract  with  A  may  assume  the  pay- 
ment of  the  debt  to  B,  and,  as  we  have  seen,  B  may  sue 
on  this  contract;  but  B  need  not  accept  C's  obligation 
in  place  of  A's  if  he  does  not  want  to. 

Sec.  119.  POWER  TO  ASSIGN  CONTRACTUAL 
RIGHTS  WHEN  COUPLED  WITH  PERSONAL  CON- 
FIDENCE AND  LIABILITY.  Contractual  rights  cannot 
be  assigned  if  they  are  coupled  with  liabilities  or  involve  the 
credit,  skill  or  personal  confidence  of  the  assignor. 

One  cannot  assign  his  rights  under  a  contract  if  such 
rights  are  connected  with  liability  or  other  personal  ele- 
ment. "You  have  the  right  you  anticipate  from  the 
character,  credit  and  substance  of  the  party  with  whom 
you  contract."    Humble  v.  Hunter,  12  Q.  B.  310. 

Example  /6.  Dunton  Lumber  Co.  sold  to  K.  Co.  the 
entire  output  of  white  pine  lumber  for  1901,  except  such 
as  it  should  need  for  its  retail  trade  in  Rumford  Falls. 
The  K.  Co.  were  to  pay  within  10  days  from  receiving 
invoice.    The  K.  Co.  attempted  to  assign  to  Demarest, 


198  The  Law  of  Contracts. 

but  the  Dunton  Co.  would  not  recognize  him,  and  he 
brought  suit.  The  court  held  the  contract  not  to  be  as- 
signable. ^®® 

Sec.  120.  CONTRACTUAL  RIGHTS  TO  BE  ACQUIRED 
IN  FUTURE  NOT  ASSIGNABLE.  One  may  assign  any 
right  under  an  existing  contract,  but  cannot  assign  rights 
under  a  contract  not  yet  made. 

One  cannot  assign  to  another  what  he  has  not  got 
himself,  because  assignment  supposes  present  transfer 
of  title.  But  it  is  sufficient  within  this  rule  that  the  con- 
tract is  actually  existing,  although  it  might  be  termi- 
nated by  either  party  at  any  moment. 

A  is  employed  by  B.  He  borrows  money  from  L, 
and  as  security  assigns  to  L  his  salary  from  B,  also  any 
salary  he  may  make  from  any  other  employer.  A's  em- 
ployment with  B  is  from  day  to  day  and  B  could  let  him 
go  at  any  time  without  liability  to  A.  The  assignment 
of  wages  to  be  earned  under  the  contract  with  B  is  good, 
but  the  assignment  as  to  other  employers  is  ineffec- 
tual.161 

Sec.  121.  EFFECT  OF  ASSIGNMENT  AS  TO  AS- 
SIGNOR. The  assignor  of  an  obligation  still  remjuns  re- 
sponsible to  the  other  party  for  the  due  performance  of  the 
contract.  Assignment  of  rights  divests  the  assignor  of  such 
title  as  he  had. 

If  one  assigns  obligations  he  still  is  responsible  for 
the  performance  of  the  contract,  even  though  the  con- 
sent of  the  other  party  has  been  secured;  but  this  must 
be  understood  as  not  referring  to  a  case  of  novation  or 

160.  Demarest  v.  Dunton  Lumber  Co.,  161  Fed.  264. 

161.  Mulhall  V.  Quinn,  67  Mass.  105;  Mallin  v.  Wenham,  2og 
111.  252. 


American  Commercial  Law.  199 

where  the  other  party  has,  instead  of  permitting  an  as- 
signment, been  a  party  to  a  novation.  Thus,  if  one  leases 
a  building  and  afterwards,  with  or  without  the  assent 
of  the  landlord,  assigns  his  lease  to  another,  and  that 
other  fails  to  pay  the  rent,  the  original  lessee  can  be 
held.162 

After  assignment  of  a  right  the  assignor  loses  his  right 
to  receive  the  benefits  under  the  contract.  The  assignee 
for  that  purpose  has  a  right  to  step  into  his  place. 

Sec.  122.  THE  ASSIGNEE  AS  THE  SUCCESSOR  TO 
THE  TITLE  OF  THE  ASSIGNOR.  The  assignee  takes 
the  title  and  right  of  the  assignor,  and  is  subject  to  all  the 
equities  and  defenses  between  the  original  parties. 

The  theory  of  contract  being  that  it  is  a  personal  re- 
lationship between  two  or  more  persons  who  have  chosen 
each  other,  assignment  of  rights  thereunder,  without  the 
other  party's  consent,  is  permitted,  as  we  have  seen,  upon 
the  theory  that  the  contractual  arrangement  is  not  there- 
by disturbed.  It  follows  from  this,  that  such  assignment 
cannot  be  permitted  to  increase  the  obligations  of  the 
other  party  thereunder.  Therefore,  the  assignee  will 
take  the  right  as  it  actually  exists,  not  as  it  may  seem 
to  be;  and  will  take  it  subject  to  all  adjustments  and 
defenses  to  which  the  assignor  would  have  been  subject 
had  there  been  no  assignment. 

Example  17.  A  has  a  contract  of  service  with  B,  by 
which  B  pays  him  a  monthly  salary.  A  assigns  his  sal- 
ary to  C  in  security  for  a  loan.  If  this  salary  has  already 
been  paid,  though  not  due,  or  if  A  does  not  earn  his 
salary,  or  if  A  owes  B  money  as  a  set  off,  these  defenses 

162.  Grommes  v.  St.  Paul  Trust  Co.,  I47  lU-  634. 


200  The  Law  of  Contracts. 

may  be  had  by  B  against  C  as  readily  as  against  A,  pro- 
vided B  had  done  nothing  by  which  C  in  taking  the  as- 
signment has  been  misled  as  to  the  true  facts. ^^^ 

Thus,  failure  of  consideration,  lack  of  consideration, 
fraud,  duress,  undue  influence  or  any  other  defense  be- 
tween the  parties,  may  be  made  against  an  assignee. 

If  the  assignment  is  by  way  of  negotiation  of  a  ne- 
gotiable instrument,  this  reasoning  does  not  apply,  as 
negotiable  paper  was  invented  in  part  to  escape  this 
situation. 

Sec.  123.  EFFECT  OF  ASSIGNMENT  AS  TO  OTHER 
PARTY  (DEBTOR).  Where  a  contract  is  assignable,  the 
debtor  must  pay  heed  to  the  assignment  and  recognize  the 
assignee  when  he  has  received  notice  of  the  assignment,  but 
no  rights  are  acquired  against  him  until  notice  is  given. 

Assignment  may  be  with  the  consent  and  knowledge 
of  the  other  party  to  the  contract,  or  it  may  be  done 
quite  independently  of  him.  The  usual  practice  in  as- 
signment of  wages  as  security  for  a  loan  is  an  example 
of  this.  If  a  contract  is  assignable  and  is  assigned,  the 
debtor  must  recognize  the  assignment  when  it  is  brought 
to  his  notice.  He  need  not,  however,  ever  assume  that 
the  party  has  assigned  his  contract  and  may  treat  with 
him  on  the  theory  that  there  has  been  no  assignment. 
Thus  an  assignable  instrument  differs  again  from  a  ne- 
gotiable one.  The  maker  of  a  negotiable  promissory  note 
has  no  right  to  assume  that  a  note  has  not  been  negotiated 
and  must  therefore  demand,  in  order  to  protect  himself, 
the  production  of  the  instrument.  But  a  promisor  of  a 
non-negotiable,  though  assignable,  right,  need  not  assume 

163.  Westfall  V.  Jones,  23  Barb.  (N.  Y.)  9. 


American  Commercial  Law.  201 

its  assignment  and  can  treat  with  his  promisee  in  per- 
fect safety  until  the  assignee  notifies  him.^^* 

Sec.  124.  WHAT  CONSTITUTES  ASSIGNMENT, 
DRAFTS,  CHECKS,  ORDERS,  ETC.  The  fund  or  right 
assigned  must  be  designated  or  identified.  An  order  by  one 
party  upon  another  to  pay  a  third  a  certain  designated  fund 
or  debt  owing  will  operate  as  an  assignment  of  the  fund. 
But  a  draft  or  a  check  is  not  an  assignment  for  it  is  drawn 
on  the  credit  of  the  drawer  and  not  upon  the  credit  of  any 
fimd. 

If  B  has  a  fund  belonging  to  A,  and  A  draws  an  or- 
der on  B  directing  B  to  pay  this  fund  to  C,  this  will 
operate  as  an  assignment  of  the  fund.  There  can  be 
no  assignment  of  a  right  to  a  fund,  account,  etc.,  unless 
it  is  identified.  Manifestly  this  must  be  so.  The  as- 
signee must  have  a  right  to  demand  some  certain  thing 
and  the  other  party  to  the  contract  must  know  what  to 
deliver  or  pay  over. 

A  bill  of  exchange  is  an  order  by  A  on  B  to  pay  C, 
or  order,  a  certain  amount.  Suppose  B  has  in  his  pos- 
session funds  belonging  to  A.  Is  the  bill  of  exchange 
an  assignment?  It  is  well  settled  it  is  not,  because  the 
bill  is  drawn  on  A's  general  credit,  and  B  assumes  no 
liability  until  he  accepts  the  bill.  The  bill  also  creates  a 
liability  both  on  A  and  on  B  when  B  accepts  that  the 
face  of  the  instrument  will  be  paid,  though  the  fund 
might  fail.  Even  if  the  bill  of  exchange  refers  to  a  fund 
out  of  which  B  may  reimburse  himself  when  he  pays  C, 
the  bill  is  not  an  assignment.^^^  An  assignment  must 
direct  the  payment  of  the  fund.  If  an  order  is  drawn 
on  the  general  credit  of  the  drawer  it  is  not  an  assign- 

164.  Sears  v.  Trustees,  28  111.  183. 

165.  See  Negotiable  Paper  in  this  series. 


202  The  Law  of  Contracts. 

ment.  If  it  is  an  assignment  it  is  not  a  bill  of  exchange, 
because  it  does  not  fulfil  the  definition  of  a  bill  of  ex- 
change. The  same  reasoning  applies  to  checks  which  are 
a  species  of  a  bill  of  exchange. 

Sec.  125.  ASSIGNMENT  BY  OPERATION  OF  LAW. 
On  the  death  or  bankruptcy  of  a  person,  certain  of  his  rights 
and  liabilities  pass  to  his  representative.  In  general,  all 
rights  and  obligations  pass  which  are  not  purely  personal. 
In  a  sale  of  real  estate,  many  rights  and  obligations  pass 
which  were  created  by  former  deed. 

The  assignment  of  contracts  by  operation  of  law  takes 
place  in  case  of  death  or  bankruptcy  of  a  contracting 
party.  Such  rights  or  liabilities  as  are  not  purely  per- 
sonal will  go  to  the  representative,  who  is  called  in  case 
of  death,  the  executor  (if  appointed  by  will),  or  the 
administrator  (if  appointed  by  the  court),  and  who  is 
called  in  case  of  bankruptcy,  the  trustee.  Rights  or  lia- 
bilities purely  personal  would  not  pass.  Thus,  if.  A 
agrees  to  work  for  B  for  a  year,  but  dies  during  the 
year,  the  liability  to  B  is  discharged,  but  the  right  to 
salary  earned  during  the  period  of  actual  employment 
would  pass  to  the  executor  or  administrator.  For  the 
title  which  is  acquired  by  a  trustee  in  bankruptcy,  see 
subject  of  Bankruptcy. 


CHAPTER  14. 

INTERFERENCE  WITH  CONTRACTUAL  RELATION- 
SHIPS BY  THIRD  PARTIES. 

Sec.  126.  DUTY  NOT  TO  INTERFERE  WITH  CON- 
TRACT RIGHTS.  A  third  person  has  a  duty  not  to  inter- 
fere to  induce  another  to  break  his  contract,  unless  done  in 
good  faith,  in  the  exercise  of  fair  competition.  If  he  does  so 
wrongffully  interfere,  he  may  be  sued  in  tort  by  the  party  to 
the  contract  whom  he  has  thus  wronged. 

While  the  law  upon  this  subject  is  not  uniform  in  all 
its  phases  in  all  jurisdictions,  the  subject  may  be  stated 
generally  as  follows:  That  a  contract  between  parties 
imposes  a  duty  upon  strangers  thereto,  toward  each  party 
not  to  induce  the  other  party  to  break  off  his  contractual 
relationships,  unless  he  does  it  in  good  faith  and  by  way 
of  fair  competition. 

Example  78.  Horn  was  employed  by  A.  S.  &  Co.,  as 
foreman ;  he  was  injured  and  made  a  claim  against  A.  S. 
&  Co.,  for  damages.  A.  S.  &  Co.  carried  liability  in- 
surance in  the  L.  G.  Co.,  covering  this  injury.  The  agent 
for  the  L.  G.  Co.  threatened  to  procure  H's  discharge 
unless  he  would  settle  for  a  sum  offered.  He  refused  it 
and  the  Insurance  Company  did  procure  his  discharge. 
He  brought  suit  against  the  L.  G.  Co.  for  interfering 
with  his  contract  with  A.  S.  &  Co.  Held,  he  had  a  case 
in  tort  on  this  ground,  as  there  was  no  legal  excuse  in 
this  case.  The  Court  put  emphasis  on  the  fact  that  this 
was  not  a  case  of  competition.^^^ 

166.  London  Guarantee  Co.  v.  Horn,  206  111.  493- 

203 


204  The  Law  of  Contracts. 

If  the  breach  is  obtained  in  the  exercise  of  fair  com- 
petition, it  is  lawful,  as  where  a  dealer  offers  better  serv- 
ice or  better  prices,  and  thus  succeeds  in  getting  trade 
from  a  competitor. 

But  the  competition  must  be  real,  not  simulated  com- 
petition established  to  injure  one,^^'^  and  there  must 
neither  be  promises  of  indemnity  ^^^  nor  false  reports 
about  the  rival.^**® 

Sec.  127.  CONTRACT  FOR  INDEFINITE  PERIOD. 
By  the  better  view  it  is  immaterial  whether  the  contract  is 
for  a  fixed  period  or  not  if  its  discontinuance  is  caused  by 
the  unlawful  interference. 

In  the  Horn  case  stated  above,  the  employe  was  em- 
ployed under  no  definite  contract  of  employment.  He 
could  have  been  discharged  at  any  time.  But  he  would 
not  have  been  discharged  except  for  the  interference  of 
the  Insurance  Company.  And,  therefore,  his  case  was 
not  defeated  by  that  character  of  his  contract.  To  so 
hold  would  be  to  introduce  a  technicality  which  would 
defeat  justice. 

Sec.  128.  PREVENTION  OF  FUTURE  CONTRACTS. 
If  a  person  is  reasonably  certain  to  make  a  contract  with  an- 
other, and  a  third  person  without  valid  excuse  interferes  to 
prevent  it,  he  may  be  held  in  damages. 

If  one  may  interfere  with  an  existing  contract,  he 
may  certainly,   under  the   same   circumstances,  prevent 

167.  Tuttle  V.  Buck,  107  Minn.  145. 

168.  Amer.  Law  Book  Co.  v.  Edw.  Thompson  Co.,  84  N.  Y. 
Supp.  225. 

i6g.  Evanson  v.  Spaulding,  150  Fed.  517;  Sperry  v.  Weber,  161 
Fed.  219. 


American  Commercial  Law.  205 

one,  as  where  a  person  successfully  gets  a  contract  which 
his  competitor  would  have  procured.  But  if  the  inter- 
ference is  without  legal  justification,  a  suit  may  be  main- 
tained, ^^o 

170.  Lewis  V.  Bloede,  202  Fed.  7. 


PART  IV. 
DISCHARGE   OF   CONTRACTS. 

CHAPTER  15. 

DISCHARGE    BY    PERFORMANCE,    TENDER    AND 
BREACH. 

Sec.  129.  MEANING  OF  PHRASE  "DISCHARGE  OF 
CONTRACTS."  A  contract  is  discharged  when  the  obliga- 
tions therexinder  are  in  some  way  extinguished,  so  that  no 
liability  on  the  contract  furthermore  exists. 

Having  considered  the  formation  of  contracts,  and  its 
operation,  we  may  now  consider  how  it  shall  be  dis- 
charged, that  is  to  say,  how  its  obligation  shall  be  ex- 
tinguished. Assuming,  then,  that  a  contract  has  been 
entered  into,  and  binds  the  parties,  let  us  consider  how 
it  may  come  about  that  a  party  thereto  may  claim  that 
his  obligations  thereunder  are  gone.  This  discharge  may 
arise  in  a  number  of  ways.  Naturally  we  think  first  of 
discharge  by  performance,  for  the  performance  was  the 
purpose  of  the  contract.  But  there  are  a  number  of 
other  means.  We  may  state  them  here  and  then  consider 
them  separately.  Discharge  of  contract  may  arise  (a) 
by  performance;  (b)  by  tender  of  performance;  (c)  by 
breach;  (d)  by  impossibility  of  performance;  (e)  by 
alteration  of  a  written  instrument;  (f)  by  agreement; 
(g)  by  operation  of  law,  as  by  bankruptcy. 

Sec.  130.  OF  THE  PERFORMANCE  WHICH  WILL 
DISCHARGE  CONTRACT.     Generally  speaking,  only  lit- 

206 


American  Commercial  Law.  207 

eral  compliance  with  the  terms  of  a  contract  will  operate  to 
discharge  it.  Yet  in  some  contracts,  where  details  are  nu- 
merous and  complex,  and  there  is  substantial  compliance  in 
good  faith,  this  will  be  a  discharge. 

As  a  general  rule  it  may  be  stated  that  a  contract  must 
be  strictly  performed  according  to  its  terms,  and  such 
performance  certainly  will  always  operate  as  a  discharge, 
thus  constituting  a  good  cause  of  action  for  the  party 
performing  if  he  brings  suit,  or  a  good  defense  if  he  is 
sued.  For  where  one  engages  with  another  that  he  will 
supply  certain  goods  or  perform  certain  services,  he  can- 
not claim  that  he  has  performed  until  those  very  goods 
have  been  supplied,  at  the  time  and  place  and  in  the 
manner  stipulated,  or  that  those  services  have  been  ren- 
dered as  agreed  upon.  Yet  the  modem  decisions  allow 
one  in  many  cases  to  aver  a  substantial  performance 
made  by  him  in  good  faith,  that  is  to  say,  in  an  attempt 
to  perform  literally,  in  order  to  bring  suit  upon  the  con- 
tract, or  defend  against  a  charge  of  breaking  his  con- 
tract, allowing  an  amount  from  the  contract  price  to 
compensate  the  other  party  for  the  slight  defect.  Thus, 
in  a  building  contract,  the  building  contractor  may  sue 
to  recover  the  contract  price  if  he  has  in  all  things  sub- 
stantially though  not  literally  complied.^'^i  But  a  sum 
will  be  deducted  from  such  contract  price  to  the  extent 
necessary  to  make  the  building  entirely  conform  to  the 
plans.  This  rule  is  considered  more  just,  as  it  allows 
one  to  sue  for  the  price  which  is  due  according  to  his 
contract  and  permits  the  other  to  have  a  reduction  on 
account  of  the  departure.  Under  this  rule  there  cannot 
be  any  material  departure  and  the  departure  must  not 
have  been  purposeful. 

171.  Fitzgerald  v.  La  Porte,  64  Ark.  34. 


2o8  The  Law  of  Contracts. 

Sec.  131.  OF  THE  PERFORMANCE  OF  CONTRACTS 
WHICH  BY  THEIR  TERMS  ARE  TO  BE  TO  THE  SAT- 
ISFACTION OF  THE  OTHER  PARTY. 

Occasionally  one  in  his  zeal  to  make  a  bargain,  or 
because  he  has  so  great  faith  in  his  skill,  undertakes  to 
perform  his  contract  to  the  other's  "satisfaction."  Sup- 
pose then  that  the  other  says  that  he  is  not  satisfied;  is 
this  final?  The  terms  of  the  contract  so  indicate.  Yet 
most  courts  make  a  distinction.  Where  the  contract  is 
to  furnish  something  that  chiefly  appeals  to  one's  fancy 
or  personal  taste  and  is  entered  into  for  the  purpose  of 
pleasing  that  personal  taste  and  fancy,  then  one  can  say 
finally  without  respect  to  the  merits  of  the  performance 
that  he  is  not  satisfied.  This  is  true  where  one  orders 
a  suit  of  clothes,  a  portrait,  a  bust,  or  other  work  of 
art.^'^2  Bear  in  mind,  however,  that  even  in  such  a  case 
there  must  have  been  an  agreement  to  perform  to  one's 
satisfaction.  Otherwise,  even  in  such  cases,  one  would 
have  no  right  to  be  dissatisfied  where,  judged  as  a  rea- 
sonable man,  he  ought  to  be  satisfied. 

Where  one  claims  he  is  not  satisfied,  he  cannot  at  the 
same  time  accept  and  retain  the  goods. 

But  in  cases  where  the  element  of  personal  taste  and 
fancy  does  not  enter,  he  cannot  assert  breach  where  the 
performance  is  such  that  a  reasonable  man  ought  to  be 
satisfied.  If  a  reasonable  man  ought  to  be  satisfied,  as 
determined  by  the  jury,  the  court  will  say  that  this  par- 
ticular man  is  satisfied.  This  is  true  of  all  contracts 
whose  performance  involves  mechanical  execution,  such 
as  grading  a  dock,  putting  in  a  furnace,  etc.^''^^ 

172.  Brown  v.  Foster,  113  Mass.  136. 

173.  Duplex  Safety  Boiler  Co.  v.  Garden,  loi  N.  Y.  387. 


American  Commercial  Law.  209 

Sec.  132.  OF  THE  PERFORMANCE  THAT  WILL 
NOT  DISCHARGE  AND  THEREFORE  CONSTITUTES 
BREACH.  A  performance  is  not  even  substantial  and  in 
good  faith,  or,  if  there  is  no  performance,  this  constitutes 
breach,  unless — 1st, — there  is  impossibility  of  performance  in 
those  cases  where  that  will  discharge,  or  unless  2nd, — there 
is  acceptance  of  the  incomplete  performance  in  lieu  of  full 
performance,  or,  unless  3rd, — there  is  some  other  mode  of 
discharge  which  excuses  performance. 

If  the  performance  is  not  even  substantial  in  the  man- 
ner that  has  been  discussed,  then  the  party  alleging  per- 
formance must  either  admit  breach,  or  else  rely  on  some 
fact  that  discharges  contract  besides  performance,  or  else 
he  must  show,  that  although  the  performance  was  de- 
fective, nevertheless  it  had  been  received  and  accepted 
as  full  performance. 

Sec.  133.  EFFECT  OF  ACCEPTANCE  OF  PERFORM- 
ANCE WHICH  DOES  NOT  FULFILL  REQUIREMENTS 
OF  TERMS.  If  defective  or  part  performance  is  accepted, 
with  knowledge  of  the  breach,  such  acceptance,  when  volun- 
tary, usually  operates  to  waive  the  breach,  especially  if  the 
breach  consists  merely  in  not  doing  something  provided  for 
the  other's  benefit,  but  not  preventing  substantial  perform- 
ance. If  the  circumstances  show  no  intention  to  waive  dam- 
ages in  the  acceptance  of  a  part  or  delayed  performance, 
then  such  damages  may  be  recovered;  but  if  acceptance  is 
forced  upon  one,  he  may  aver  breach  as  an  entire  defense  if 
sued  on  the  contract.  Some  courts,  however,  allow  a  rea- 
sonable compensation  even  in  that  case. 

Where  there  is  a  breach  which  one  might  insist  upon 
but  does  not  do  so,  and  accepts  performance  notwith- 
standing the  breach,  this  usually  operates  as  a  waiver 
Bays — 14 


210  The  Law  of  Contracts, 

of  the  breach.  Thus,  suppose  that  one  has  a  suit  of 
clothes  made  which  does  not  conform  to  the  order,  yet 
he  nevertheless  accepts  it;  this  precludes  him  from  in- 
sisting that  the  contract  was  broken.  Or  suppose  that 
an  employer  continues  in  his  employment  a  clerk  who 
does  his  work  in  such  an  incompetent  or  negligent  man- 
ner that  he  could  have  been  discharged  therefor;  this  is 
a  waiver  of  the  breach  and  the  clerk  could  collect  the 
salary  agreed  upon.  Or  suppose  that  one  having  a  house 
built  is  entitled  to  an  architect's  certificate  before  he  ac- 
cepts, yet  accepts  without  such  certificate,  he  cannot  aver 
that  there  has  been  any  breach.^*^^ 

If  at  the  time  one  accepts  he  does  not  know  of  the 
breach,  he  will  not  be  considered  as  having  waived  it. 
Thus,  if  the  employer  was  absent  during  the  rendition 
of  his  clerk's  incompetent  and  negligent  service,  and  the 
breach  was  material,  he  might  have  a  good  defense  to  a 
suit  for  the  salary  agreed  upon.  Or  suppose  he  accepts 
goods  which  are  not  as  warranted,  yet  this  defect  is  not 
at  the  time  of  the  acceptance  discoverable  upon  ordinary 
inspection,  as,  for  instance,  where  canned  goods  contain 
a  deleterious  substance  that  soon  destroys  them,  or  a 
piece  of  machinery  will  not  do  the  work  agreed  upon, 
there  is  no  waiver. 

Sometimes  the  circumstances  practically  force  one  to 
accept,  as  where  a  building  not  even  in  substantial  com- 
pliance with  the  contract  is  put  on  one's  land.  In  such 
case  one  may  insist  upon  the  breach  unless  the  circum- 
stances show  that  he  waived  it.^'^^ 

Where  there  is  a  waiver  of  the  breach,  there  may  or 
may  not  also  be  a  waiver  of  the  right  to  insist  upon  dam- 
ages.   If  one  accepts  under  protest  and  in  order  to  save 

174.  Smith  V.  Aiker,  108  N.  Y.  87. 
175-  Eldridge  v.  Rowe,  7  111.  71. 


American  Commercial  Law,  211 

himself  or  the  other  party  from  greater  damages,  he 
does  not  necessarily  waive  his  right  to  have  his  dam- 
ages, although  it  might  be  said  that  he  has  waived  the 
breach  in  the  sense  that  he  did  accept  what  was  offered. 
Thus,  if  one  orders  ice  from  a  distance  and  a  poorer 
quality  than  that  ordered  is  received,  he  may  in  order 
to  stop  further  waste  or  loss  accept  the  ice,  but  have  his 
damages.  So  where  performance  is  delayed,  one  may 
still  accept  but  have  damages  for  the  delay  unless  the 
circumstances  show  that  he  waived  prompt  performance. 
The  same  may  be  said  of  partial  performance. 

Where  one  has  no  option  but  to  accept,  as  in  the  case 
of  the  improvement  of  one's  land,  or  the  acceptance  of 
services  from  one  who  afterwards  breaks  his  contract, 
if  there  has  been  a  performance  whose  benefit  without 
compensation  would  amount  to  an  unjust  enrichment  at 
another's  expense,  the  courts  often  allow  a  reimburse- 
ment entirely  independent  of  the  terms  of  the  contract. 
In  such  a  case,  one  could  not  plead  and  assert  his  ex- 
press contract,  but  out  of  the  justice  of  the  matter,  and 
on  a  quasi-contractual  basis,  compensation  is  allowed, 
if,  from  the  facts,  justice  demands  it.  However,  there 
is  a  division  of  authority  on  this  point.  Thus,  in  an  Illi- 
nois case  where  one  was  employed  for  a  certain  time 
and  unjustifiably  quit  before  that  time,  the  court  said 
he  could  have  nothing.^'''® 

Sec.  134.  PERFORMANCE,  OR  TENDER  OF  PER- 
FORMANCE, REQUIRED  OF  ONE  PARTY  BEFORE 
HE  CAN  REQUIRE  PERFORMANCE  BY  THE  OTHER. 
To  substantiate  an  averment  of  breach  one  party  must  show 
that  he  has  done  all  that  the  contract  required  him  to  do  be- 
fore he  could  require  performance  by  the  other,  or  that  he 

176.  Eldridge  v.  Rowe,  7  111.  ^\. 


212  The  Law  of  Contracts. 

has  made  a  tender  where  the  performances  were  to  have  been 
concurrent. 

Where  one  party  is  alleging  breach  by  another,  it  is 
to  be  inquired  whether  he  has  himself  progressed  far 
enough  in  the  performance  of  a  contract  to  charge  the 
other.  Thus,  if  one  was  bound  by  his  contract  of  sale 
to  deliver  goods  to  a  certain  place,  he  could  not  charge 
the  other  with  breach,  so  long  as  he  had  not  deHvered 
them  at  that  place.  In  a  great  majority  of  cases  one 
does  not  have  to  fully  perform  his  contract  before  he 
can  charge  the  other  with  non-performance.  How  far 
he  must  go  depends  on  his  undertaking  by  the  terms  of 
his  agreement.  Then  if  he  does  not  go  that  far  he  has 
no  right  to  charge  the  other  party,  but  on  the  contrary 
has  himself  committed  a  breach.  But  where  one  was 
not  to  perform  in  whole  or  in  part  except  as  the  other 
also  performed,  he  need  only  tender  performance.  If 
one  agrees  to  sell  goods  for  cash,  he  need  not  deliver 
those  goods  in  order  to  charge  the  other  party;  he  need 
only  tender  them  at  the  proper  time  and  place. 

Tender  of  performance  need  not  be  kept  good,  except 
where  it  consists  in  payment  of  a  debt.  Thus,  one  who 
is  to  sell  goods  need  only  make  tender  when  the  time 
comes,  and  then  his  obligation  is  gone;  but  it  is  other- 
wise with  the  payment  of  money ;  a  tender  thereof  does 
not  discharge  a  debt,  although  it  may  stop  the  running  of 
interest  and  accrual  of  damages. 

Sec.  135.  BREACH  OP  ONE  PART  OF  A  SEVER- 
ABLE CONTRACT  NOT  A  BREACH  OF  THE  CON- 
TRACT. A  severable  contract  is  really  a  number  of  inde- 
pendent contracts  embraced  in  one  agreement.  A  breach  of 
one  of  the  parts  thereof  is  not  a  breach  of  the  other  parts 
thereof  because  each  is  independent  of  the  other.    But  if  a 


American  Commercial  Law.  213 

contract  is  enti/e,  a  breach  of  any  part  of  it  is  a  breach  of  all 
of  it.  It  is  often  difficult  to  tell  whether  contracts  are  sever- 
able or  entire. 

If  A  has  contract  No.  i,  and  contract  No.  2,  with  B, 
his  breach  of  No.  i  will  not  be  a  breach  of  No.  2.  B 
cannot  refuse  to  go  on  with  No.  2  because  No.  i  was 
broken.  Each  is  independent  of  the  other.  Now  sup- 
pose that  contract  No.  i  and  contract  No.  2  were  both 
made  at  one  time  and  in  the  same  transaction  and,  in- 
deed, both  in  the  same  paper.  Then  would  the  result 
be  changed?  It  would  depend  on  the  intention  of  the 
parties,  whether  they  were  making  one  entire  contract, 
or  really  several  contracts  in  one  agreement.  This  is 
often  a  very  hard  matter  to  say.  The  usual  contract  is 
of  course  entire.  The  question  arises  most  frequently 
in  installment  contracts.  Suppose  one  hundred  tons  of 
coal  are  to  be  delivered  each  month  for  twelve  months; 
is  this  really  twelve  several  contracts,  or  one  entire?  If 
A  fails  to  deliver  the  first  installment,  can  B  refuse  to 
receive  the  other  deliveries?  It  is  well  settled  that  the 
mere  fact  that  a  contract  is  performable  in  installments 
does  not  prevent  it  from  being  an  entire  contract.  But 
aside  from  this,  the  courts  differ  as  to  rules  to  apply 
and  as  to  the  application  of  rules  of  them.^'^'^ 

Whether  a  contract  is  entire  or  severable  rests  on  the 
evident  interdependence  of  the  parts.  If  A  agrees  to 
build  B  three  houses  at  a  stated  price  for  each  house, 
and  the  three  undertakings  are  independent,  each  of  the 
others,  there  would  be  a  severable  contract.  But  if  A 
were  to  agree  to  paint  the  walls  of  one  house  for  a  cer- 
tain price  and  the  floor  for  another  price  and  the  ceiling 
for  yet  another,  this  would  seem  to  be  an  entire  contract, 
and  a  breach  of  any  one  of  the  undertakings  would  dis- 

177.  See  subject  "Sales"  in  this  series. 


214  The  Law  of  Contracts. 

charge  the  contract.  So  the  contract  in  respect  to  the 
three  houses  could  be  made  entire.  This  subject  is  very 
confusing  and  cannot  be  fully  explained  here. 

Sec.  136.  TO  WHAT  ONE  OF  SEVERAL  CONTRACTS 
PERFORMANCE  RELATES— APPLICATION  OF  PAY- 
MENTS. Where  one  makes  a  performance  equally  appli- 
cable to  one  of  several  contracts  he  has  a  right  to  direct  its 
application,  but  where  he  does  not  direct  it  the  other  party 
has  a  right  to  apply  the  performance  to  whichever  contract 
he  desires. 

The  rule  now  under  discussion  relates  chiefly  to  a 
payment  made  by  one  to  another  to  whom  he  owes  sev- 
eral debts.  Suppose  A  owes  B  $500  and  the  debt  is  un- 
secured. He  also  owes  B  $500,  secured  by  chattel  mort- 
gage. A  pays  B  $100.  Naturally  B  would  much  pre- 
fer to  apply  this  to  the  unsecured  debt.  But  if  A  in 
making  the  payment  made  no  direction,  B  may  apply  it 
as  he  pleases.    But  A  may  direct  the  application. 

Sec.  137.  BREACH  OF  CONTRACT  BY  RENUNCIA- 
TION PRIOR  TO  TIME  OF  PERFORMANCE.  If  one 
announces  definitely  before  time  of  performance  that  he  will 
not  perform,  or  voluntarily  does  an  act  which  makes  it  im- 
possible for  him  to  perform,  the  other  party  may  treat  the 
contract  as  broken  and  sue  at  once.  But  this  applies  only  to 
bilateral  contracts.  If  one  does  not  act  upon  this  anticipatory 
breach,  he  keeps  the  contract  open  for  the  benefit  of  both 
parties,  and  the  other  party  may  change  his  mind  and  perform 
the  contract 

One  may  break  his  contract  by  anticipation.  He  may 
do  this  by  definitely  announcing  that  he  will  not  perform 
when  the  time  comes,  or  by  doing  something  which  puts 


American  Commercial  Law.  215 

it  out  of  his  power  to  perform.  This  gives  the  other 
party  the  right  to  sue  at  once.^"^  But  if  this  anticipatory 
breach  is  not  acted  upon,  the  party  who  declared  his  in- 
tention to  break  the  agreement  may  change  his  mind  and 
perform  it.  Or  if  anything  occurs  to  discharge  him  of 
his  performance,  he  can  depend  on  that  ground  notwith- 
standing prior  to  that  time  he  has  said  that  he  would 
not  perform,  when  the  other  party  did  not  prior  to  such 
cause  of  discharge  accept  and  act  upon  the  breach.  The 
reasoning  under  this  section  does  not  apply  to  a  unilateral 
contract.  Thus,  an  announcement  that  one  would  not 
pay  a  note  when  due  would  give  no  immediate  right  of 
suit  upon  it. 

178.  Hochster  v.  De  La  Tour,  2  El.  &  Bl.  678  (Contract  of 
employment  to  begin  June  i,  1852.  May  11,  1852,  defendant  wrote 
he  could  not  perform  and  suit  was  brought  at  once.  Plaintiff 
was  allowed  damages).  Kadish  v.  Young,  108  Illinois  Reports, 
170. 


CHAPTER  i6. 

DISCHARGE   OF  CONTRACTS  BY  OTHER  MEANS 
THAN   PERFORMANCE   OR  BREACH. 

S«c.  138.  DISCHARGE  BY  IMPOSSIBILITY  OF  PER- 
FORMANCE. If  an  event  transpires  rendering  perform- 
ance impossible  this  will  discharge  the  contract  where  it  may 
be  said  to  have  been  the  mutual  intent  of  the  parties  that  the 
contractual  obligation  was  not  to  endure  if  such  event  did 
transpire. 

Impossibility  of  performance  will  not  always  discharge 
a  contract.  Very  often  one  is  held  liable  upon  his  con- 
tracts when  it  had  become  utterly  impossible  for  him  to 
perform.  Yet,  whenever  the  impossibility  springs  from 
the  occurrence  of  an  event  which  we  must  from  the  na- 
ture of  the  case  look  upon  as  having  been  in  the  minds 
of  the  parties  as  an  event  which  should  put  an  end  to 
the  contract,  such  event  will  discharge.  Thus  it  comes 
down  to  a  question  of  intention.  We  may  say  as  a  gen- 
eral rule  that  where  the  contract  is  to  operate  on  a  par- 
ticular subject-matter  and  that  subject-matter  is  de- 
stroyed, the  contract  becomes  impossible  of  performance 
in  a  way  that  will  discharge  any  further  liability  upon 
it.  Thus,  if  one  were  to  deliver  coal  of  a  certain  quan- 
tity out  of  his  mine,  the  exhaustion  of  the  mine  would 
excuse  him.^'^^  So  where  the  contract  calls  for  personal 
services,  obviously  the  continued  existence  and  fit  condi- 
tion of  health  of  the  party  is  contemplated.     Thus,  A 

179.  Walker  v.  Tucker,  70  111.  527. 

216 


American  Commercial  Law.  217 

agrees  to  work  for  B  for  one  year,  and  one  month  there- 
after A  dies ;  B  cannot  sue  A's  estate  for  breach  of  con- 
tract. 

But  in  cases  where  there  cannot  be  said  to  be  this 
mutual  intention  there  is  no  discharge,  though  there  is 
as  a  matter  of  fact  impossibility.  Thus,  if  one's  em- 
ployees strike  or  he  cannot  obtain  necessary  workmen, 
or  secure  the  necessary  funds,  or  material,  these  are  mat- 
ters which  will  not  discharge,  unless  it  was  so  stipulated 
in  the  contract.  And  mere  hardship  is  never  impossi- 
bility.180 

Sec.  139.  DISCHARGE  BY  ALTERATION  OF  WRIT- 
TEN  INSTRUMENT.  Where  one  of  the  parties  to  a  con- 
tract expressed  in  a  written  instrument  purposely  alters  it  in 
a  material  part,  this  will  discharge  the  other  party  o£  his  lia- 
bility upon  it. 

Where  an  instrument  is  intentionally  altered  in  any 
material  part  without  the  consent  of  the  other  party, 
this  operates  to  relieve  the  other  party  of  his  liability 
upon  the  instrument.  A  material  alteration  is  any  altera- 
tion which  changes  any  material  or  substantial  part  of 
the  contract  and  changes  its  effect. 

The  rule  is  the  same  whether  the  alteration  was  in- 
nocent or  fraudulent,  so  far  as  the  effect  on  the  instru- 
ment is  concerned.  Yet  it  is  held  in  many  cases  that  if 
there  was  an  alteration  by  one  without  any  fraudulent 
intention  he  may  sue  the  other  for  benefits  received 
where  there  would  have  been  a  right  to  sue  independ- 
ently of  the  written  instrument,  in  spite  of  the  altera- 
tion, for  instance,  where  there  is  a  debt. 

Where  an  instrument  is  altered  by  some  third  party 
this  cannot  destroy  the  rights  of  the  parties. 

I  So.  Id. 


2i8  The  Law  of  Contracts. 

Sec.  140.  DISCHARGE  BY  NOVATION.  Discharge  by 
novation  is  discharge  of  a  party  to  a  contract  by  agreement 
of  all  the  parties  whereby  some  other  party  supersedes  him, 
or  discharge  of  a  provision  in  a  contract  by  an  agreement 
eliminating  it  or  superseding  it  by  another. 

There  are  two  sorts  of  novation:  novation  of  parties, 
and  novation  of  terms.  The  word  ''novation"  signifies  a 
change.  It  is  generally  used  to  describe  those  cases  in 
which  a  person  to  a  contract  is  by  agreement  super- 
seded by  another  who  assumes  his  place  therein  ;  or  those 
cases  in  which  a  term  in  a  contract  becomes  discharged 
by  its  elimination  in  favor  of  another  one. 

Novation  of  parties  signifies  the  agreement  of  all 
concerned  that  one  may  be  substituted  for  another.  It 
differs  from  assignment  materially.  Assignment  may  be 
in  many  cases  with  or  without  the  consent  of  the  other 
party  to  the  contract,  and  whether  with  or  without  con- 
sent it  does  not  discharge  the  assignor  of  his  liability  for 
the  payment  of  indebtedness  if  the  assignee  does  not  pay 
it.  But  novation  assumes  an  agreement  by  all  parties  to 
the  contract  that  another  may  be  substituted  for  him  and 
that  he  be  let  out  entirely  from  then  on. 

Sec.   141.    DISCHARGE   BY   MERGER.  By  merger  is 

meant  the  cessation   of  one   contract  by  its  inclusion  in  a 

subsequent  one,  whether  to  the  same  effect  or  to  another, 
which  was  meant  to  supersede  it. 

If  one  is  sued  upon  a  contract  or  sues  upon  it  him- 
self, he  may  claim,  or  the  other  side  may  claim,  that 
while  such  a  contract  once  existed,  it  was  merged  into 
another  made  later,  and  meant  to  supersede  it.  This  is 
a  species  of  discharge  by  agreement. 


American  Commercial  Law.  219 

Sec.  142.  DISCHARGE  BY  AGREEMENT.  The  par- 
ties may  at  any  time  before  or  during  the  performance  of  the 
contract  discharge  it  by  agreement. 

What  parties  have  agreed  to  do,  they  may  of  course 
thereafter  agree  not  to  do.  If  they  mutually  abandon 
the  contract  by  agreeing  to  giving  up  their  undertaking, 
or  put  a  new  one  in  its  place,  this  will  discharge  the 
abandoned  agreement.  It  has  no  longer  any  force.  A 
written  contract  may  be  discharged  by  an  oral  agree- 
ment ;  but  by  the  old  common  law  and  even  now  in  some 
states,  a  contract  under  seal  could  only  be  altered  by 
agreement  under  seaV^^  although  if  the  alteration  were 
carried  out  as  agreed  upon  the  courts  would  not  disturb 
it.  The  safest  plan  is  to  put  any  new  agreement  chang- 
ing an  old  agreement  under  seal  also  under  seal.^^^ 

Sec.  143.  DISCHARGE  IN  BANKRUPTCY.  Indebted- 
ness arising  out  of  contracts  may  be  discharged  in  b£mk- 
ruptcy  whether  due  or  not. 

The  National  Bankruptcy  law  provides  that  one  may 
by  conforming  to  its  provisions  and  by  surrendering  his 
assets  for  the  benefit  of  his  creditors,  discharge  his  in- 
debtedness which  arises  out  of  his  contracts.  Thus  lia- 
bility on  a  note  would  be  discharged  whether  the  note 
were  mature  or  not. 

One's  executory  contracts,  as  an  agreement  to  per- 
form services,  etc.,  are  not  dischargeable  in  bankruptcy. 

A  new  promise,  made  after  the  bankruptcy,  to  pay  the 
debt,  will  revive  it.  In  some  states  this  new  promise 
must  be  in  writing.     See  Bankruptcy  in  this  series. 

181.  Alschuler  v.  Schiff,   164  111.  298. 

182.  Id. 


220  The  Law  of  Contracts. 

Sec.  144.  DISCHARGE  BY  STATUTE  OF  LIMITA- 
TIONS. The  various  states  have  statutes  providing  that 
a  debt  cannot  be  sued  upon  after  a  certain  length  of  time 
from  its  maturity.  The  period  varies  in  different  states. 
And  in  the  same  state  is  usucilly  longer  for  written  than  for 
oral  contracts.  Making  a  new  promise,  or  a  part  payment 
or  a  payment  of  interest  revives  the  debt  and  the  statute  be- 
gins to  run  again  as  of  that  date. 

The  statute  of  limitations  may  be  considered  at  this 
point,  although  perhaps  in  strict  theory  it  does  not  be- 
long here.  For  the  statute  of  Hmitations  does  not  really 
operate  to  discharge  a  contract  or  indebtedness  arising 
out  of  the  contract  or  the  breach  thereof.  It  only  creates 
a  bar,  so  that  the  defendant  can  say,  "What  you  claim 
in  reference  to  the  existence  of  a  contract  may  be  true, 
but  you  have  waited  too  long  to  maintain  your  suit." 
The  policy  of  this  statute  is  to  prevent  the  putting  for- 
ward of  stale  claims  as  to  which  the  evidence  may  have 
become  lost  by  lapse  of  time.  The  law  considers  that 
if  a  man  has  a  claim  he  ought  to  assert  it  in  some  reason- 
able time. 

If  a  payment  is  made  after  a  statute  runs,  or  after 
it  has  begun  to  run,  this  stops  the  running  and  it  will 
not  be  a  bar  until  the  full  period  after  that  payment. 
This  refers  to  payment  of  the  principal  or  interest.  So 
a  new  promise  operates  in  the  same  way  to  revive  the 
debt.  But  usually  such  new  promise  is  not  valid  unless 
in  writing. 

If  the  statute  is  not  pleaded  in  defense,  the  promise 
is  enforceable. 


CHAPTER  17. 

REMEDIES  OF  THE  PARTIES. 

A.    Action  for  Damages. 

Sec.  145.  IN  GENERAL.  The  most  usual  relief  which  one 
has  against  another  for  breach  of  contract  is  an  action  for 
damages  in  a  court  of  law.  And  wherever  there  is  a  breach 
of  contract,  the  other  party  not  being  in  default  himself,  may 
maintain  his  action  for  damages. 

Where  a  breach  of  contract  occurs,  the  usual  remedy 
and  in  most  cases  the  only  remedy,  is  by  way  of  an  ac- 
tion in  the  court  for  damages.  And  this  action  always 
arises  in  every  case  where  there  has  been  a  breach  by 
one  party,  not  waived  by  the  other  party,  and  the  other 
party  is  not  in  default  himself. 

Sec.  146.  KINDS  OF  DAMAGES  IN  CONTRACT 
CASES.  Damages  in  contract  cases  may  be  referred  to  as 
nominal  or  actual.  Nominal  demiages  are  given  upon  breach 
where  no  actual  damages  are  proved.  Actual  damages  are 
such  damages  as  are  actually  sustained  on  account  of  the 
breach. 

Where  there  is  a  breach  of  contract  no  actual  dam- 
ages may  result.  This  is  many  times  the  case.  A  ver- 
dict for  nominal  damages  would  then  be  allowed  and 
this  would  carry  with  it  a  right  to  have  the  costs  of  suit. 
Actual  damages  are  such  as  really  occur. 

221 


222  The  Law  of  Contracts. 

Sec.  147.  RULE  FOR  COMPUTING  DAMAGES  IN 
CONTRACT  CASES.  Those  actual  damages  may  be  al- 
lowed which  both  parties  at  the  time  of  the  contract  must  be 
supposed  to  have  contemplated  as  likely  to  result  from 
breach.  Remote,  contingent  and  uncertain  damages  cannot 
be  proved. 

The  actual  damages  sustained  by  one  may  not  be  al- 
lowed by  the  court.  One  may  only  have  those  damages 
which  under  the  circumstances  at  the  making  of  the 
contract  must  have  been  considered  as  likely  to  result 
if  breach  occurred.  Thus,  if  one  is  under  contract  to 
erect  a  building,  the  purpose  of  the  building,  the  use 
to  which  the  builder  knew  the  owner  was  to  put  it, 
whether  it  was  to  be  used  permanently  or  only  tempo- 
rarily, as  for  a  fair,  would  all  go  to  affect  the  result. 
The  delay  in  the  erection  of  some  buildings  causes  no 
damage;  the  delay  in  the  erection  of  others  causes  very 
much. 

In  the  same  way  the  breach  of  contracts  of  sales  of 
personal  property  or  for  services,  would  result  differ- 
ently. Whatever  both  parties  must  be  considered  as  hav- 
ing contemplated  as  damages  will  b€  allowed.^^^  This 
prevents  the  proof  of  remote  damages. 

Damages  must  also  be  reasonably  certain.  One  can- 
not merely  speculate  on  what  his  damages  would  have 
been.    He  must  have  some  reasonably  certain  proof. 

B.    Bill  for  Specific  Performance. 

Sec.  148.  GENERAL  RULE.  A  bill  for  the  specific  per- 
formance will  lie  where  (1)  the  court  considers  that  dam- 
ages would  not  be  an  adequate  compensation,  and  (2)  where 

183.  Hadley  v.  Baxendale,  9  Exch.  341. 


American  Commercial  Law.  223 

the  performance  asked  for  is  of  such  nature  that  it  could  be 
enforced  by  the  court. 

The  Court  of  Equity  takes  jurisdiction  to  enforce  the 
specific  performance  of  contract  where  it  regards  dam- 
ages as  the  inadequate  compensation,  providing  the  per- 
formance sought  could  be  enforced.  A  Court  of  Equity 
will  not  enforce  the  performance  of  a  contract  to  work 
for  another  for  a  year,  because  it  could  not  carry  out 
its  decree.  It  could  not  "stand  over"  the  man  and  com- 
pel him  to  render  the  services.  And  even  if  it  should 
try  to  do  so  it  would  be  really  sentencing  the  defendant  to 
slavery.  The  kind  of  contracts  whose  performance  a 
court  will  enforce  are  those  contracts  whose  perform- 
ance calls  for  the  execution  of  a  deed,  a  mortgage,  a 
lease,  etc.  But  if  damages  are  considered  adequate,  it 
will  not  enforce  performance.  We  may  consider  various 
classes  of  contracts. 

Sec.  149.  CONTRACTS  FOR  THE  SALE  OF  REAL 
ESTATE,  OR  AN  INTEREST  THEREIN.  A  court  will 
enforce  a  fair  contract  for  the  sale  of  real  estate  or  for  a 
lease  or  mortgage  at  the  instance  of  either  party,  for  it  con- 
siders damages  inadequate  compensation  for  the  loss  of  a 
particular  piece  of  land. 

If  A  contracts  to  sell  B  a  certain  parcel  of  land,  B  can 
secure  a  decree  for  specific  performance,  that  is  to  say, 
the  court  will  compel  A  to  execute  a  deed;  provided  the 
contract  on  B's  part  was  fair.  This  is  on  the  theory  that 
if  B  is  confined  to  damages,  his  relief  would  be  inade- 
quate as  there  is  no  other  piece  of  land  like  this  one  con- 
tracted for  which  B  could  buy  with  his  damages.^^ 

184.  Cud  V.  Rutter,  i  P.  Wms.  570. 


224  The  Law  of  Contracts. 

As  the  law  gives  the  remedy  to  a  buyer,  so  it  gives  to  a 
seller.    Either  can  have  specific  performance. 

Where  this  remedy  exists  there  would  also  be  a  right 
to  sue  for  damages  at  one's  election. 

Sec.  150.  CONTRACTS  FOR  THE  SALE  OF  PER- 
SONAL PROPERTY.  A  court  will  not  usually  enforce  at 
the  instance  of  either  party  a  contract  to  sell  personal  prop- 
erty, for  it  considers  damages  an  adequate  remedy;  but  where 
the  property  has  a  peculiar  or  rare  value,  specific  perform- 
ance will  be  decreed. 

If  A  sells  B  I, GOO  bushels  of  wheat,  B's  damages  for 
A's  default  will  be  an  adequate  remedy  in  the  eyes  of 
the  law.  The  world  is  full  of  wheat,  from  which  A's 
wheat  cannot  be  identified,  and  therefore  B  may  make 
himself  whole.  Or,  if  B's  purpose  was  the  profit  he 
could  have  made,  the  judgment  will  be  based  upon  that 
fact. 

If  personal  property  has  a  very  peculiar  or  rare  value 
the  court  will  decree  a  specific  performance  of  a  contract 
to  sell  it.  Thus  a  contract  to  sell  a  painting  of  historic 
value  would  be  enforced ;  or  corporate  stock  not  to  be 
had  on  the  market,  and  which  would  have  a  peculiar  value 
to  the  buyer.^ss 

Of  course,  if  in  a  contract  of  sale  of  personal  property, 
title  has  passed,  the  buyer  could  secure  it  by  a  writ  of 
replevin.  That  would  not  be  a  specific  enforcement  of  the 
contract,  but  only  allowing  the  buyer  to  have  what  was 
his  own  under  the  contract  that  had  already  been  per- 
formed to  the  extent  of  conferring  title. 

185.  P.  &  F.  Corbin  v.  Tracy,  34  Conn.  325. 


American  Commercial  Law.  225 

Sec.  151.  CONTRACTS  FOR  PERSONAL  SERVICES. 
Contracts  for  persoiicil  services  will  never  be  specifically 
enforced. 

Whether  damages  are  adequate  or  not,  the  result  is  the 
same  in  this  class  of  agreements.  The  court  has  no  ef- 
fective way  to  compel  a  man  to  perform  personal  services. 
It  could  not  stand  constant  guard  over  him,  seeing  him 
perfonn.  So  the  policy  of  the  law  would  not  permit  it. 
The  remedy  for  breach  of  contract  for  personal  services 
is  by  way  of  action  for  damages. 

C.    Bill  for  Injunction. 

Sec.  152.  WHEN  THE  COURT  WILL  ENJOIN 
BREACH  OF  CONTRACT.  A  court  of  equity  will  enjoin 
a  threatened  breach  of  contract  when  such  breach  consists  in 
doing  something  the  party  has  covenanted  not  to  do,  and 
there  is  no  adequate  remedy  for  such  breach  by  way  of 
damages. 

If  a  party  to  a  contract  has  agreed  as  a  part  of  such 
contract  to  refrain  from  entering  into  competition,  or 
performing  services,  or  making  certain  use  of  land,  the 
Court  will  enjoin  the  breach,  provided  the  breach  would 
result  in  injury  which  damages  could  provide  no  com- 
pensation for.^^*' 

Thus,  if  one  agrees  not  to  use  his  land  for  certain 
purposes  and  is  about  to  break  his  covenant  in  that 
regard,  a  Court  of  Equity  will  protect  the  other  party 
by  affording  relief  by  way  of  injunction.  So  if  one  in 
selling  out  a  business  agrees  to  restrain  his  competi- 
tion in  a  manner  considered  reasonable  the  court  will 
enjoin  him  from  breaking  his  contract.     In  such  cases 

186.  Phila.  Ball  Club  v.  La  Joie,  202  Pa.   State  210. 
Bays— 15 


226  The  Law  of  Contracts. 

damages  would  be  so  hard  to  estimate  that  a  court 
will  not  confine  a  party  to  his  action  for  damages.  A 
covenant  not  to  work  for  any  one  else  than  the  other 
party  to  the  contract  will  sometimes  be  protected  by 
injunction.  But  in  such  cases  it  must  appear  that  the 
party  whose  services  are  contracted  for,  was  of  such 
skill  or  reputation  that  he  could  not  be  replaced  and 
therefore  damages  would  be  inadequate.  For  example, 
A,  an  actor  of  great  skill  and  reputation,  appears  to  B's 
theater  nightly  for  eight  weeks,  and  agrees  not  to  appear 
elsewhere  during  that  period.  The  court  will  not  grant 
a  decree  of  specific  perfonnance,  as  we  have  seen,  and 
B  has  no  way  he  can  compel  A  to  appear  at  his  theater. 
He  is  left  to  his  action  for  damages.  But  he  can  secure 
an  injunction  against  A  appearing  in  any  one's  else 
theater,  and  this,  perhaps,  will  have  the  incidental  result 
of  compelling  A  to  perform  at  B's  theater. 


APPENDIX. 

QUESTIONS  AND  PROBLEMS. 


APPENDIX. 


QUESTIONS  AND  PROBLEMS  IN  GENERAL 
SURVEY. 

CHAPTER  1. 

1.  What  are  the  two  great  branches  of  political  law?  What  is 
municipal  law? 

2.  What  is  international  law?    What  two  forms  does  it  take? 

3.  What  are  the  branches  of  municipal  law,  as  herein  enu- 
merated ? 

CHAPTER  2. 

4.  Define  constitutional  law ;  what  is  a  constitutional  govern- 
ment? 

5.  What  is  meant  by  the  phrase  "unconstitutional  law"? 

6.  What  were  the  Articles  of  Confederation? 

7.  When  was  the  United  States  Constitution  adopted?  Give 
date  and  purpose  of  the  various  amendments. 

8.  What  was  decided  in  McCuUoch  v.  Maryland? 

9.  What  is  the  function  of  a  state  constitution? 

10.  Define  administrative  law. 

11.  A  carelessly  throws  a  brick  from  a  high  building  into  a 
public  street  below.  It  lights  near  B,  who  is  thereby  frightened.  Has 
A  committed  a  crime?    Has  he  committed  a  tort? 

12.  Define  a  crime.     Name  some  crimes. 

13.  Define  a  tort.  Is  an  act  which  is  a  tort  necessarily  a 
crime?     Name  some  torts. 

14.  What  is  "adjective"  law? 


CHAPTER  3. 


15.  What  is  written  law? 

16.  Define  a  code. 


229 


230  Questions  and  Problems. 

17.  What  are  the  "Uniform  laws"'?     Name  some  of  them. 

18.  Define   the  common  law. 

19.  What  are  the  judicial  reports? 

20.  State  the  rule  of  "stare  decisis,"  and  show  the  part  it  plays 
in  the  development  of  our  law. 

CHAPTER  4. 

21.  What  are  courts? 

22.  State  the  distinction  between  courts  of  "law"  and  courts  of 
"equity." 

23.  State   the   function    of  a  court  of   review. 

24.  What    is    "service" ;    an    "appearance" ;    a    "declaration" ;    a 
"plea"  ;  a  "bill  of  complaint"  ? 

25.  In  a  trial  of  a  cause,  who  tries  the  facts?  the  law?     Is  this 
the  rule  in  chancery  courts? 

CHAPTER  5. 

26.  What   are   the   chief   boards   or   commissions   of   the   federal 
government? 

27.  What    is    the    purpose    of    the    Interstate    Commerce    Com- 
mission? 

28.  Describe   the   Federal   Trade   Commission. 

29.  What  are  employers'   liability   commissions? 


QUESTIONS  AND  PROBLEMS  ON  CONTRACTS. 

CHAPTER  1. 

1.  Define  contract;  is  every  agreement  a  contract?  Why?  What 
ideas  enter  into  contract? 

2.  What  are  the  essential  elements  in  contract? 

3.  Define  (a)  formal  contracts;  (b)  simple  contracts;  is  a 
written  contract  not  under  seal  a  simple  contract?  Define  unilateral 
contract ;  bilateral  contract. 

CHAPTER  2. 

4.  What  is  meant  by  "party"  to  contract? 

5.  What  Is  the  general  rule  as  to  capacity  to  contract? 


Questions  and  Problems.  231 


6.  Who  are  "minors"? 

7.  A,  sixteen  years  of  age,  makes  a  contract  with  B  for  the 
purchase  of  an  automobile.  B  fails  to  perform.  A  sues  B.  B's  de- 
fense is  that  A  is  a  minor.     Will  it  prevail? 

8.  Is  a  minor  liable  for  his  necessaries?    On  what  theory? 

9.  A,  a  minor,  contracted  for  a  course  of  stenography.  Asst»m- 
ing  (1)  that  she  tools  the  course,  could  she  be  made  to  pay  the  tui- 
tion fee?  (2)  That  she  paid  for  the  course  in  advance,  but  did  not 
take  it,  could  she  recover  the  fee?  (Mauldin  v.  S.  S.  &  B.  U.,  60  So. 
(Ga.)  358.) 

10.  "The  jury  found  that  at  the  request  of  the  defendant,  then  an 
infant,  the  plaintiff  paid  for  him  a  board  bill  which  he  had  pre- 
viously contracted  while  attending  school."  Can  plaintiff  recover? 
(Kilgore  v.  Rich,  83  M     305,  12  L.  R.  A.  859.) 

11.  A  is  an  infant.  He  asks  B  to  loan  him  $100,  which  B  does. 
Afterwards  A  spends  the  money  for  necessaries  and  consumes  them. 
B  sues  A  and  A  pleads  his  minority  as  a  bar.  Is  it  a  good  defense? 
(Kilgore  v.  Rich,  supra;  194  111.  Ap.  509.) 

12.  Are  the  following  articles  necessary  for  a  minor : 

(a)  a  horse  (Rainwater  v.  Durham,  10  Am.  Dec.  637;  Hart  v. 
Prater,  1  Jur.  623)  ; 

(b)  a  watch  (Peters  v.  Fleming,  6  M.  &  W.  42)  ; 

(c)  jewelry  (Ryder  v.  Wombell,  L.  R.  3  Exch.  90;  Leflls  v.  Sugg, 
15  Ark.  137)  ; 

(d)  a  college  education  (Middlebury  Col.  v.  Chandler,  16  Vt. 
683)  ; 

(e)  bridal  outfit  (Jordan  v,  Coffleld,  70  N.  C.  110)  ; 

(f)  cigars  and  tobacco  (Bryant  v.  Richardson,  L.  R.  3  Exch. 
93)  ; 

(g)  club  dues  in  social  club  for  millionaire's  son ; 
(h)     automobile  for  millionaire's  son  ; 

(i)  attorney's  fees  for  female  minor  to  prosecute  breach  of 
promise  suit    (Munson  v.  Washband,  31   Conn.  303)  ; 

(j)  bicycle  for  boy  at  work,  used  to  go  and  come  from  place  of 
occupation ; 

(k)  automobile  for  minor  for  use  as  "jitney  bus"  to  earn  his  liv- 
ing (Lein  v.  Centaur  Motor  Co.,  194  111.  Ap.  509). 

13.  A  is  living  at  home,  his  father  providing  him  with  board, 
lodging  and  clothing.  He  needs  an  overcoat  for  the  winter,  and  with- 
out consulting  his  father  buys  one  from  M,  a  merchant,  on  credit. 
On  his  way  home  he  leaves  the  coat  in  a  car  and  never  recovers  it. 
The  son,  being  sued,  pleads  infancy.  Is  it  a  good  defense?  Could  the 
father  Lave  been  held  in  this  case? 


232  Questions  and  Problems. 

14.  F  sues  to  recover  purchase  price  of  automobile  bought 
by  him  from  O  while  he  was  a  minor.  After  becoming  of  age  he 
used  the  car  several  months.  Can  he  recover?  (Fried  v.  Overland 
Motor  Co.,  202  111.  Ap.  203.) 

15.  A,  a  minor,  entered  into  a  contract  to  purchase  real  estate 
on  installments.  After  becoming  of  age  he  pays  two  monthly  Install- 
ments.   Can  he  rescind?     (Rulin  v.  Strandberg,  212  111.  Ap.  327.) 

16.  What  capacity  to  contract  did  a  married  woman  have  at 
common  law?     What  is  the  rule  now? 

17.  Plaintiff  sold  and  deeded  his  land  to  defendant ;  now,  shortly 
afterwards,  brings  suit  to  rescind  the  transaction,  tendering  baclj  the 
purchase  price  and  alleging  that  at  the  time  of  the  bargain,  he  was 
so  drunlj  as  to  be  wholly  incapable  of  transacting  business  and  of 
knowing  the  nature  of  the  instruments  signed  by  him.  He  alleges 
no  fraud,  procurement  or  unfair  advantage  by  the  other  party.  Should 
he  have  rescission?  (Coody  v.  Coody,  39  Okla.  719,  136  Pac.  754, 
L.  R.  A.  1915  E.  465;  Martin  v.  Harsh,  231  111,  384,  83  N.  E.  164, 
13,  L.  R.  A,  N.  S.  1000.) 

CHAPTER  3. 

18.  What  is  meaitrt  ky  phrase  "meeting  of  the  minis"?  Define 
offeror,  offeree. 

19.  A  advertised  an  offer  in  the  newspapers  offering  a  certain  sum 
of  money  to  any  one  who  would  furnish  him  certain  information. 
B  not  knowing  of  A's  proposition,  furnishes  A  the  information.  Can  he 
recover  the  reward? 

20.  Plaintiff  brings  suit  against  the  X  corporation  for  $500,  an4 
shows  that  the  Directors  passed  a  resolution  voting  to  pay  a  reward 
of  $500  to  any  one  who  would  furnish  certain  Information ;  that  he, 
being  a  janitor  of  the  building  where  the  meeting  was  held  over- 
heard the  vote,  and  afterwards  and  within  24  hours  supplied  the  in- 
formation to  the  President  of  the  Company.  Is  this  statement  suffi- 
cient to  make  a  case?  Why?  (Sears  v.  Kings  County  Bl.  Co.,  9 
L.  R.  A.   (Mass.)   117.) 

21.  An  auction  is  advertised.  At  the  hour  and  place  B  attends, 
expending  the  sum  of  $100  in  order  to  be  present.  The  auctioneer  at 
the  hour  and  place  announces  that  no  auction  will  be  held,  as  nego- 
tiations are  in  progress  for  a  private  sale.  B  objects  and  demands 
that  the  auction  be  held.  The  auctioneer  refuses.  B  sues  the  principal 
for  $100.     Can  he  recover? 

22.  A  mall  order  house  sends  out  catalogues.  B,  a  recipient, 
mails  in  an  order  based  upon  the  catalogue.  The  house  refuses  to 
fill  the  order.    Has  B  got  a  case  against  the  house?    Why? 


Questions  and  Problems.  233 

23.  The  X  Company  writes  to  its  customers  a  circular  letter  as 
follows : 

"The  Increased  cost  of  raw  materials  compels  us  to  advance  the 
price  of  M.  L.  Oil  to  45c  per  gallon,  effective  December  1st,  f.  o.  b. 
nearest  shipping  point.  This  price  we  cannot  guarantee  for  any  definite 
period  unless  the  consumer  anticipates  his  wants  and  protects  himself 
by  a  contract  which  we  will  accept  before  December  1st  at  the  price  of 
45c  per  gallon,  subject  to  a  discount  of  2%  ten  days  for  cash." 

M,  to  whom  this  letter  is  sent,  orders  10  barrels  on  the  same  day 
he  receives  the  letter.  The  X  Company  write  him  they  cannot  honor 
his  order  (giving  no  reasons).  M  maintains  that  he  has  a  contract. 
What  do  you  think? 

24.  Give  Illustrations  of  offers  that  may  be  contained  In  cir- 
cular letters ;  in  catalogues. 

25.  A  writes  B  a  letter  offering  to  sell  B  five  carloads  of  lum- 
ber according  to  terms  stated — giving  B  five  days  to  accept.  B  re- 
plies within  the  five  days  agreeing  to  take  the  lumber  on  the  terms 
proposed,  but  adding  that  it  must  be  "surface  two  sides  and  center 
matched."  A,  still  within  the  five  days  responds  that  it  cannot  furnish 
lumber  of  this  description.  B,  still  within  the  five  days,  then  writes 
that  he  will  accept  the  offer  contained  in  the  first  letter  from  A  to  B. 
Is  there  a  contract?  Why?  (Shaw  v.  Ingram  Day  Lumber  Co.,  152 
Ky.  329,  153  S.  W.  431,  L.  R.  A.  1915  D.  145.) 

26.  A  has  1,000  bushels  of  grain  in  a  granary.  He  offers  B 
500  bushels  of  grain  of  the  same  description.  The  granary  Is  destroyed 
by  fire  before  B  accepts.  A  claims  that  this  relieves  him  from  ful- 
filling his  contract.     Is  the  contention  correct? 

27.  Can  one  revoke  an  offer  which  he  has  promised  to  keep 
open?     Why? 

28.  How  long  will  an  offer  remain  open  if  not  withdrawn? 

29.  When  may  an  offer  be  accepted  by  an  act? 

30.  A  mailed  an  offer  to  B,  with  a  request  for  a  reply  by  wire; 
he  sent  an  offer  to  C,  asking  for  a  reply  by  return  mail.  He  mailed  an 
offer  to  D  and  E,  saying  nothing  as  to  mode  of  communication.  B  re- 
plied by  mail ;  C  replied  by  wire ;  D  replied  by  wire,  and  E  replied 
by  mail,  each  one  purporting  to  accept  the  respective  offers.  Were  the 
contracts  made  in  any  of  the  above  cases?  If  so,  when?  In  your 
answer  assume  (1)  that  A  actually  received  in  due  course  the  sev- 
eral answers;  and  (2)  that  the  replies  did  not  actually  reach  A  owing 
to  the  negligence  of  the  postoffice  or  telegraph  company. 

31.  A  telegraphed  an  offer  to  B,  requesting  acceptance  by  wire. 
B  telegraphed  his  acceptance  at  once.     One  hour  later  B  telegraphed 


234  Questions  and  Problems. 

A  to  ignore  his  first  telegraph,  and  A  got  this  second  telegraph  before 
the  first  one.     A  refuses  to  agree  to  B's  request.     Is  there  a  contract? 

CHAPTER  4. 

32.  A  signed  a  paper  without  reading  it  upon  B's  assurance 
that  it  was  an  insurance  paper.  It  was  in  fact  a  guaranty  of  credit. 
A  is  sued  by  B  upon  the  paper  and  the  jury  find  (1)  That  A  did  not 
know  the  nature  of  the  paper  he  was  signing;  (2)  that  his  misconcep- 
tion was  caused  by  B's  fraudulent  statements;  (3)  that  A  was  neg- 
ligent in  not  reading  the  paper.  Has  A  a  defense?  (Carlisle  &  Cum- 
berland Banking  Co.  v.  Bragg,  (1911)   1  K.  B.  469.) 

33.  P  while  riding  a  bicycle  was  injured  by  a  collision  with  D's 
automobile.  He  was  assured  by  his  own  physician  and  the  physician 
for  P  that  his  injuries  were  slight  and  consisted  of  a  few  superficial 
injuries.  With  that  belief  in  the  minds  of  both  parties  he  executed 
the  following  release : 

"For  and  in  consideration  of  $75  to  me  in  hand  paid  by  D,  the 
receipt  whereof  is  hereby  acknowledged,  I  hereby  remise,  release  and 
forever  discharge  the  said  D  of  and  from  all  manner  of  actions,  suits, 
damages,  claims  and  demands  whatsoever,  in  law  or  equity,  against  the 
said  D  arising  out  of  an  automobile  collision  occurring  Sept.  1,  1912,  I 
ever  bad  or  now  have  or  hereafter  can  or  may  have  for,  upon  or  by 
reason  of  any  matter,  cause  or  thing  whatsoever,  from  the  beginning 
of  the  world  to  the  date  of  these  presents."  (Signed  by  P.)  As  a 
matter  of  fact  P's  hip  was  broken  in  the  accident.  He  brings  suit  to 
set  aside  the  release.  Can  he  prevail?  (Mclsaac  v.  McMurray,  L.  R. 
A  1916  B.  769  N.  H.) 

34.  A  and  B  were  stockholders  in  a  bank.  According  to  the 
books  of  the  bank  it  had  an  unimpaired  capital  and  a  surplus  and 
the  book  value  of  its  shares  was  $136.  As  a  matter  of  fact,  its  cap- 
ital stock  had  been  impaired  by  the  dishonesty  of  its  employees  and 
its  stock  was  actually  worth  $60  per  share,  although  nobody  knew 
this  except  the  dishonest  employees.  A  sold  10  shares  to  B  for 
$1,360.  B  now  seeks  to  set  aside  the  transaction  on  the  ground  of  a 
mutual  mistake.  What  is  your  opinion?  (Costello  v.  Sykes,  172 
N.  W.  907,  5  A.  L.  R.   250   (Minn.).) 

35.  A,  in  an  attempt  to  sell  a  second-hand  automobile  to  B, 
stated  that  its  tires  were  good  for  10,000  miles.  They  very  shortly 
wore  out.  Is  A  liable  to  B  for  fraud?  (Woods  v.  Nicholas,  92  Kan. 
258,   140  Pac.  862.) 

36.  A,  selling  land  located  in  Alabama,  called  upon  B  in  De- 
troit, and  stated  that  the  land  he  had  to  sell  was  good  agricultural 
land,  high  and  dry,  without  mire,  swamp  or  boggy  portions.     B  pur- 


Questions  and  Problems.  -     235 

chased  the  land.  He  found  the  contrary  to  be  true  and  sues  \. 
A  contends  that  his  staements  were  dealer's  talk.  How  should  the 
court  decide?     (Haener  v.  McKenzie.  188  Mich.  27,  154  N.  W.  59.) 

37.  Defendant  connected  a  sewer  from  his  building  to  a  pit  in  the 
rear.  He  then  covered  the  pit  with  clay  and  built  a  residence  over 
it,  the  pit  being  full  of  sewage  up  to  about  a  foot  below  the  level  of 
the  cellar,  and  sold  the  residence  to  plaintiff,  telling  him  nothing  about 
the  pit  or  sewer  pipe,  and  plaintiff  could  not  get  tenants  to  remain 
in  the  house  owing  to  the  odor.  Plaintiff  sues  for  damages.  Recover? 
(Weikel  v.  Sterns,  142  Ky.  513,  134  S.  W.  908,  34  L.  R.  A.  N.  S. 
1035.) 

38.  When  may  silence  amount  to  fraud  ? 

39.  Define  durefss.  What  is  duress  per  minas?  duress  by  Im- 
prisonment? duress  of  person?  duress  of  property?  What  was  the 
ancient  test  of  duress?     What  is  the  test  now? 

40.  A  was  accused  of  embezzlement  from  B.  B  threatened  A 
with  criminal  prosecution  unless  he  would  make  restitution.  A  hav- 
ing no  money  took  B  to  A's  sister  C,  who  being  made  acquainted  by  A 
and  B  with  the  threat,  executed  her  note  for  §1,000  in  consideration 
that  B  would  not  prosecute.  She  now  defends  on  the  grounds  of 
duress.     Discuss.     (Kronmeyer  v.  Buck,  258  111.  586.) 

41.  In  the  same  case  A  deeds  his  property  to  B  under  the  same 
threat  in  order  to  make  up  the  balance  of  B's  claim.  Assuming  (1) 
that  A  really  is  in  default  to  B  and  (2)  that  A  is  not  in  default  to  B, 
would  you  regard  as  to  either  assumption  a  suit  by  A  to  set  aside  the 
deed  as  well  or  ill-founded?     (Kronmeyer  v.  Buck,  supra.) 

42.  Suppose  in  the  same  case  A  is  guilty,  and  instead  of  giving 
a  deed  gives  his  note  and  that  a  suit  is  brought  to  enforce  it.  Has  he 
a  defense? 

43.  What  is  undue  influence?  When  will  it  be  presumed?  When 
presumed  what  must  the  other  party  do  to  remove  the  presumption? 

CHAPTER  5. 

44.  Define  consideration.     Can  there  be  a  contract  without  it? 

45.  On  Oct.  27,  1898,  the  plaintiff  ?:>nt  the  defendant  this  letter: 
"Dear  Sir :     We  offer  to  deliver  to  your  works,  during  six  months 

from  Nov.  1,  1898,  the  following  materials  at  the  prices  stated : 

Bar  iron,  $1.20  flat  delivered  by  car,  $1.25  by  wagon.  (Here  fol- 
low other  items  and  prices.) 

Yours  truly, 

R.  C.  Howes,  Sec'y. 

The  K.  C.  Bolt  &  Not  Compant, 

By  R.  C.  Howes,  Sec'y." 


236  Questions  and  Problems, 

Defendant  answered  this  letter  stating  that  he  "accepted  the 
offer"  and  ordering  two  cars.  Can  either  party  be  held  to  this 
proposition?  (Cold  Blast  Transp.  Co.  v.  K.  C.  Bolt  &  Nut  Co.,  114  Fed. 
77,  57  L.  R.  A.  696.) 

46.  Plaintiff,  manufacturer  of  a  certain  cigar,  offered  to  sell  In 
future  to  defendant,  a  cigar  dealer,  as  many  of  such  brand  as  he 
might  desire  for  his  wants,  and  to  continue  to  do  so  during  the  life 
of  the  brand,  as  long  as  defendant  cared  to  sell  them.  Defendant  ac- 
cepted this  proposition.  Is  there  a  contract?  (A.  Santaella  &  Co.  v. 
Otto  F.  Lange  Co.,  155  Fed.  719.) 

47.  The  Minnesota  Lumber  Co.  agreed  to  buy  and  the  White- 
breast  Coal  Co.  to  sell  to  the  former  "its  requirements  of  anthracite 
coal"  for  season  between  August  5,  1896,  and  .January  1,  1897  (terms, 
prices,  description  of  coal  and  other  material  terms  given).  Is  there 
a  contract?  (Minnesota  Lumber  Co.  v.  Whitebreast  Coal  Co.,  160 
lU.  85.) 

48.  "The  plaintiff  states  that  she  paid  out  money  for  the  educa- 
tion at  college  of  her  son  J.  A.  Gooch,  without  any  contract  or  un- 
derstanding that  he  would  repay  her.  Years  afterwards  in  considera- 
tion of  money  which  she  had  so  paid,  he  voluntarily  gave  her  this 
note.  That  is  really  the  consideration.  Is  that  binding  to  make  the 
note  enforceable?"  What  is  your  answer?  Why?  (Gooch  v.  Allen, 
37  L.  R.  A.  N.  S.  930  (W.  Va.).) 

49.  Plaintiff  alleges  that  her  husband  was  cruel  to  her  and  was 
so  addicted  to  Intoxicating  liquors  that  she  left  him,  that  defendant, 
her  step-son,  requested  her  to  return  to  her  husband,  promising  her 
that  if  she  did  so  and  lived  with  her  husband  the  rest  of  his  life  or  her 
life,  he  would  support  her  for  the  rest  of  her  life ;  that  in  considera- 
tion thereof,  she  accepted  and  returned  but  that  defendant  repudiates 
the  agreement.  Defendant  claims  that  his  promise  is  unenforceable 
because  of  no  benefit  to  him  and  because  of  its  uncertainty,  and  be- 
cause the  wife  only  performed  her  duty.  Is  he  right?  Discuss  all 
defenses.  (Macli  v.  Mack,  67  Nebr.  819,  31  L.  E.  A.  N.  S.  441 ; 
Parker  v.  Russell,  133  Mass.  74.) 

50.  A  was  discharged  in  bankruptcy.  He  afterwards  wrote  a 
letter  to  a  creditor  saying :  "You  will  be  paid  every  dollar  of  it." 
The  creditor  sues.  A  pleads  the  discharge.  Is  it  a  good  defense? 
(Herrington  v.  Davltt,  220  N.  Y.  162,  115  N.  B.  476,  1  A.  L.  R.  1700.) 

51.  A  reward  is  offered  for  the  capture  of  an  accused  person. 
The  sheriff  of  the  county  captures  him.     Is  he  entitled  to  the  reward? 

52.  A  contracts  to  assign  a  patent  to  a  certain  corporation  for  a 
consideration  which  is  paid  him.  He  falls  and  refuses  to  assign  the 
patent.    The  directors  offer  him  $1,000  more  to  make  the  assignment. 


Questions  and  Problems.  237 

He  does  so  assign  and  now  sues  for  the  $1,000.     Has  the  corporation 
any  defense? 

53.  PI.  sold  and  delivered  to  defendant  goods  to  amount  of 
$80.03.  Defendant  undertook  to  return  a  part  of  the  goods  sold  of 
the  value  of  $50.02.  PI.  disputed  the  right  to  do  so,  and  refused  to 
receive  the  goods  from  the  teamster.  While  matters  were  in  this  con- 
dition the  defendant  sent  plaintiff  a  check  for  $30.01,  which  was 
admittedly  due,  stating  that  it  was  in  full  settlement  of  the  account. 
Plaintiff  cashed  the  check,  notified  defendant  it  had  done  so,  and 
brought  suit  for  the  balance  claimed  by  it.  Defendant  claims  there 
has  been  a  settlement.  How  should  court  hold?  (Whittaker  Chain 
Tread  Co.  V.  Standard  Auto  Supply  Co.,  216  Mass.  204,  103  N.  E. 
695,  51  L.  R.  A.  N.  S.  315.  Contra:  Chicago,  M,  E.  Co.  v.  Clark, 
178  U.  S.  353.  See  notes,  51  L.  R.  A.  N.  S.  315,  and  11  L.  R.  A. 
N.  S.  1022.) 

54.  A's  automobile  strikes  B.  A  claims  the  accident  to  have 
been  unavoidable.  B  threatens  suit.  A  offers  $500  in  settlement. 
B  accepts.  B  afterwards  repudiates  the  settlement,  refuses  to  take 
the  $500  ani  sues  for  $1,000.  A  offers  no  evidence  except  the  settle- 
ment.   Is  it  a  good  defense? 

55.  What  is  a  composition  with  creditors?    Is  it  binding? 

56.  A  threatens  suit  against  B  for  price  of  a  ring  sold  by  A 
to  B.  C  tells  A  that  he  will  pay  him  the  price  of  the  ring  If  A  will 
forbear  suit  against  B.  A  sues  C  on  this  promise.  Has  he  got  a 
good  case? 

CHAPTER  6. 

57.  The  W.  S.  &  T.  Wks.  was  engaged  in  making  and  selling 
harvesting  machines.  It  sold  everything  pertaining  to  the  business 
to  H.  Mfg.  Co.,  agreeing  "not  again  to  go  into  the  manufacture  of 
harvesting  machines"  anywhere  in  the  United  States.  The  seller  had 
a  national  and  international  good  will  in  its  business.  It  now  begins 
the  manufacture  of  such  machines  contrary  to  this  agreement.  The 
buyer  seeks  to  restrain  it.    Will  the  court  issue  an  injunction? 

58.  What   is   a   monopoly? 

59.  J  went  into  the  employ  of  P,  the  owner  of  an  Express  Com- 
pany, and  signed  the  following  agreement : 

"I  do  hereby  agree  in  consideration  of  my  employment  by  the 
express  company,  that  I  will  assume  all  risks  of  accident  or  injury 
which  I  shall  meet  with  or  sustain  in  the  course  of  such  employment 
whether  occasioned  by  the  negligence  of  said  company  or  any  of  its 
members,   oflScers,  agents  or  employees."     J   subsequently  became  in- 


238  Questions  and  Problems. 

jured  by  reason  of  P's  negligence  and  brings  suit.  Is  the  above 
agreement  a  good  defense?  (Johnston  v.  Fargo,  184  N.  Y.  379,  7  L.  R. 
A.  N.  S.  537.) 

60.  The  I.  C.  R.  Co.  leased  to  C,  a  grain  elevator,  the  lease 
stipulating  that  "the  risks  of  all  loss,  injury  and  damage  by  fire, 
however  caused,  and  whether  or  not  caused  by  the  negligence  of  the 
lessor,  its  agents  or  servants,  are  hereby  assumed  by  the  lessee." 
Fire  caused  destruction  of  the  premises,  originating  as  C  alleges  from 
the  negligence  of  the  R.  Co.'s  servants.  C  brings  suit.  Is  the  pro- 
vision a  defense?  (Checkley  v.  I.  C.  R.  Co.,  257  111.  491,  44  L.  R.  A. 
N,  S.  1127.) 

61.  Define  usury.  Is  it  a  crime  to  charge  usury?  Can  usury 
paid  be  recovered?     What  is  the  penalty  of  charging  usury? 

62.  A  borrows  money  from  B  at  usurious  rates.  A  repays  in- 
terest from  time  to  time  until  he  has  repaid  more  than  the  principal. 
B  sues.  A  pleads  usury.  B  claims  that  he  is  only  suing  for  the  prin- 
cipal which  he  is  entitled  to  under  the  statute,  conceding  the  usury, 
that  the  payments  have  all  been  of  interest,  and  that  as  usury  paid 
cannot  be  recovered,  he  is  entitled  to  the  principal.  How  should  the 
court  hold? 

63.  A  desires  to  borrow  $1,000  from  B  for  one  year.  B  gives 
him  $930,  and  takes  his  note  for  $1,000  payable  in  one  year.  The 
note  also  provides  that  if  the  $1,000  is  not  paid  when  it  is  due  it 
shall  bear  interest  after  maturity  at  the  rate  of  seven  per  cent.  One 
year  after  the  note  becomes  due,  B  brings  suit.  A  claims  that  the 
note  is  usurious.  What  is  the  sum  B  can  collect  on  this  note  under 
the  laws  of  Illinois  which  makes  a  charge  of  over  seven  per  cent  usury? 
(See  for  citation  of  cases  Sanford  v.  Lundquist,  18  L.  R.  A.  N.  S. 
(Nebr.)  633.) 

64.  M,  a  farmer,  placed  an  order  for  2,000  barrels  of  pork  for 
September  delivery,  with  C,  a  broker.  A  statute  of  the  State  forbade 
pretended  purchases  of  pork  where  receipt  and  delivery  is  not  intended. 
M  paid  $400  in  margins  and  the  pork  was  sold  out  at  a  profit.  C  re- 
fuses to  account.  M  brings  suit.  Assuming  that  the  court  finds  that 
no  receipts  or  deliveries  were  intended,  can  M  have  relief?  (Carey 
V,  Myers,  92  Kan.  493,  L.  R.  A.  1916  B.  1056.) 

65.  The  consul  general  of  Turkey  made  a  contract  with  a  man- 
ufacturer of  firearms,  by  which  the  consul  general  for  a  certain  com- 
mission agreed  to  effect  through  his  influence  with  the  representatives 
of  the  government,  sales  of  the  arms  manufactured  by  the  concern 
with  which  he  contracted.  Is  the  contract  valid?  (Oscanyan  v. 
Winchester   Repeating  Arms  Co.,  103   U.   S.   261.) 

66.  Is  a   contract   made   on    Sunday   valid? 


Questions  and  Problems.  239 

6T.  A  pawnbroker  does  business  without  a  license.  B  leaves  a 
diamond  with  him  and  obtains  $100  as  a  loan  thereon.  Must  B  pay 
the  principal  and  interest  or  either  in  order  to  obtain  baclc  ring? 
(Levinson  v.  Boas,  150  Cal.  185,  12  L.  R.  A.  N.  S.  575.) 

68.  A  statute  of  the  State  of  Kansas  prohibited  pool  selling  and 
book  making  in  that  state.  Kansas  City,  Kas.,  passed  an  unconstitu- 
tional ordinance  licensing  such  forbidden  business  to  any  person  paying 
$5,000  a  year.  L  paid  $5,000  and  received  a  license.  He  outfitted  a 
place  at  considerable  expense  and  opened  it  for  business.  On  the  sec- 
ond day  after  opening  up,  the  city  authorities  closed  him  up.  He 
sues  to  recover  the  $5,000.  Can  he  recover?  (Levy  v.  Kansas  City, 
168    Fed.    524,    22    L.    R.    A.    N.    S.    862.) 

69.  A  sells  goods  to  B  knowing  that  B  intends  their  use  in  an 
immoral  and  illegal  business.  Can  A  maintain  a  suit  for  the  price? 
(Loose  V.  Larsen,  161  Pac.  (Nev.)  514,  L.  R.  A.  1917  B.  1166.) 

70.  Plaintiff  sold  to  defendant  a  quantity  of  candies  and  silver- 
ware, putting  the  candy  in  packages  labelled  prize  candy  packages,  in 
some  of  which  there  were  tickets,  with  the  name  of  an  article  of  sil- 
verware on  them.  The  defendant's  intent  was  to  sell  for  more  than 
the  packages  were  themselves  worth,  the  buyer  to  take  his  chance  on 
getting  a  prize,  and  plaintiff  knew  this.  Such  a  sale  was  contrary  to 
the  lottery  law.  Plaintiff  sues  for  the  price.  Defense,  illegality. 
How  should  the  court  hold?     (Hull  v.  Ruggles,  56  N.  Y.  424.) 

71.  Where  one  has  lost  money  in  gambling,  may  he  recover  it? 
On  what  theory? 

CHAPTER  7. 

72.  Define  "seal."  Is  consideration  necessary  in  a  sealed  con- 
tract?    What  legislation  has  there  been  as  to  private  seals? 

73.  What  was  the  rule  as  to  the  abrogation  or  modification  of  a 
contract  under  seal  by  an  agreement  not  under  seal? 

74.  When  was  the  English  Statute  of  Frauds  enacted?  What 
two  sections  related  to  contracts?  What  was  the  purpose  of  the 
statute  of  frauds? 

75.  N,  operating  his  automobile,  ran  over  D,  and  took  her  in  an 
unconscious  condition  to  L.  V.  Hospital,  at  whose  oral  request  she 
was  cared  for.  Bills  were  sent  to  N.  He  refused  to  pay  and  suit  is 
started  against  him.  He  pleads  the  statute  of  frauds.  Is  it  a  good 
defense?     (Lake  View  Hospital  v.  Nicholson,  202  111.  Ap.  205.) 

76.  An  executor  promises  to  pay  a  legacy  which  legatee  could 
not  otherwise  get  on  account  of  insufficiency  of  the  personal  estate, 
if  legatee  will  not  contest  the  will,  the  executor  having  an  interest 


240  Questions  and  Problems. 

in  having  the  will  stand.  In  a  suit  to  enforce  the  promise  the  executor 
pleads  statute  of  frauds.  Is  the  defense  good?  (Mackin  v.  Dwyer, 
205  Mass.  472,  91  N.  E.  893.) 

77.  A  owning  a  shale  pit  and  a  brick  yard,  orally  agrees  with  B 
to  deliver  his  entire  output  of  brick  for  one  year  to  B.  A  afterwards 
refuses  to  perform  and  being  sued  claims  that  the  statute  of  frauds  is 
a  good  defense.  Discuss  the  defense  under  the  fourth  and  under  the 
seventeenth  section. 

78.  A  orally  guaranteed  the  condition  of  a  roof  for  five  years. 
B  sues  A  on  this  guaranty.  Statute  of  frauds  is  plead.  Is  it  a  good 
defense?  (Philip  Carey  Mfg.  Co.  v.  So.  Construction  Co.,  2  Ala.  Ap. 
292,  56  So.  746.) 

79.  In  what  ways  may  the  seventeenth  section  of  the  statute  of 
frauds  be  satisfied?  Does  it  differ  from  the  fourth  section  in  that 
regard  ? 

80.  Must  both  parties  sign  the  memorandum?  May  an  agent 
sign?  Must  the  agent's  authority  be  in  writing?  Is  an  assumed  name 
a  good  signature?     Must  the  signature  be  subscribed? 

81.  A  orders  a  set  of  teeth  from  a  dentist.  He  refuses  to  take 
the  teeth  and  defends  on  the  ground  there  is  no  compliance  with  the 
statute  of  frauds.     Is  the  defense  good? 

82.  "The  defendant  admits  in  his  answer  the  execution  of  the 
subscription  contract,  and  that  he  had  not  paid  the  amount  of  his 
subscription  for  the  reason  that  he  had  an  oral  contract  with  the 
promoter  whereby  the  promoter  would  re-sell  his  subscription  for  the 
amount  for  which  he  had  subscribed  and  that  his  liability  would 
thereby  cease."  Is  this  a  good  defense?  (Huster  v.  Newkirk  Cream- 
ery &  Ice  Co.,  141  Pac.  790  (Okla.).) 

83.  A  applies  for  flre  insurance  upon  the  house  and  outbuild- 
ings upon  his  farm.  The  insurance  agent  comes  out  and  looks  the 
place  over  and  decides  to  write  the  insurance.  By  mistake  he  mis- 
described  the  land.  A  flre  later  occurs  and  A  desires  to  bring  suit. 
Can  the  courts  give  him  any  relief?  (French  v.  State  Farmers  Hail 
Insurance  Co.,  29  N.  Dak.   42G ;   L.   R.  A.  1915  D.  766.) 

84.  A  ships  goods  with  tlie  M.  R.  R.  Co.  A  bill  of  lading  Is 
issued  describing  goods,  termination,  rates,  etc.  A  desires  to  show 
that  another  termination  than  that  stated  was  orally  agreed  upon, 
and  that  twice  as  many  goods  were  received  as  stated  in  the  contract. 
Assuming  that  the  evidence  is  pertinent  to  the  issues,  should  he  be 
allowed  to  do  either? 

85.  A  entered  into  B's  employ  and  undertook,  for  contingent  fees, 
to  detect  larceny  and  embezzlement  among  the  other  employees.  The 
contract  on  its  face  does  not  show  this.     The  court  In  deciding  such 


Questions  and  Problems.  241 

agreement  to  be  illegal,  is  met  with  the  objection  that  this  proof 
would  vary  the  terms  of  a  written  contract.  Can  this  be  shown? 
(42  L.  R.  A.  N.  S.  847.) 

86.  Give  an  illustration  of  a  contract  "implied  in  fact" ;  a  con- 
tract "implied  in  law."     Explain  the  difference. 

CHAPTER  8. 

87.  What  is  the  object  of  a  rule  of  construction? 

88.  Enumerate  the  various  rules  of  construction  given  in  the 
text. 

CHAPTER  9. 

89.  What  is  the  meaning  of  the  phrase  "time  is  of  the  essence"' 
of  a  contract? 

90.  Is  time  the  essence  of  a  contract  in  a  court  of  equity? 

CHAPTER  10. 

91.  On  September  10,  1909,  the  Parker-Washington  Company 
•  *  •  entered  into  a  contract  by  which  it  agreed  to  construct  for 
the  city  of  Chicago  the  foundations  of  a  boiler  room,  auxiliary  build- 
ings and  chimney  of  a  pumping  station  at  One  Hundredth  Street  and 
Stewart  Avenue,  in  the  city  of  Chicago,  and  to  complete  the  same 
by  December  22,  1909.  The  woric  was  not  completed  until  March  5, 
1910,  seventy-three  days  after  the  date  fixed  for  its  completion.  Tlie 
contract  contained  the  following  provision  :  "It  is  distinctly  under- 
stood and  agreed  by  the  parties  hereto  that  the  work  to  be  performed 
hereunder  shall  be  completed  within  the  time  hereinabove  fixed  for  its 
completion.  Inasmuch  as  failure  to  complete  the  same  within  the 
time  herein  fixed  will  work  an  injury  to  the  city  of  Chicago,  and  as 
damages  arising  from  such  failure  cannot  be  calculated  with  any 
degree  of  certainty,  it  is  hereby  agreed  that  if  such  work  is  not  fully 
completed  within  the  time  fixed  herein  there  shall  be  deducted  from 
the  contract  price  and  retained  by  said  city,  as  its  ascertained  and 
liquidated  damages,  the  sum  of  fifty  dollars  ($50)  for  each  and  every 
day  passing  after  the  date  fixed  for  the  completion,  until  said  work  is 
fully  completed  as  specified."  When  the  work  was  completed  the  de- 
fendant in  error  retained  the  stipulated  sum  of  $50  a  day  for  the 
seventy-three  days  as  liquidated  damages  and  the  remainder  of  the 
contract  price  was  paid.  The  plaintiff  in  error  brought  suit  in  the 
municipal  court  of  Chicago  for  the  sum  as  so  retained  and  also  for  a 
balance  due  on  another  contract.    Was  the  city  justified  in  withholding 

Bays — 16 


242  Questions  and  Problems. 

this  sum  of  $50  per  day?      (The  Parker- Washington  Co.  v.  Chicago, 
267  111.  130.) 

92.  Suit  to  recover  $2,500  deposited  pursuant  to  terms  of  a  lease 
of  a  theatre  building  from  March  11,  1912,  to  February  26,  1917,  at 
a  rental  of  $350  per  month.  Default  in  payment  of  rent  for  part  of 
November  and  all  of  December,  1912,  and  suit  brought  by  the  lessor 
for  possession  after  giving  five  days'  notice  of  termination  by  lessor 
for  non-payment  of  rent,  and  judgment  for  possession  in  favor  of  land- 
lord ;  also  judgment  against  landlord  for  the  $2,500  less  amount  of 
rent  due  him  for  the  months  mentioned.  Appeal.  "Section  11  of  the 
lease  *  *  ♦  provided  that  said  sum  was  'to  be  held  by  party  of 
the  first  part  as  security  for  the  faithful  performance  by  the  party 
of  the  second  part  of  the  covenants  and  agreements  *  *  *  which 
said  sum  *  *  *  shall  be  applied  by  said  party  of  the  first  part 
as  rental  reserved — for  the  said  premises  for  each  of  the  last  7  1/7 
months  of  the  term.  •  *  •  "By  section  12  it  -was  further  cove- 
nanted and  agreed  that  in  the  event  that  the  indenture  of  lease  to 
which  this  rider  is  attached  shall  be  terminated  by  reason  of  a  breach 
by  party  of  the  second  part  *  *  *  then  *  •  *  the  party  of 
the  first  part  may,  at  his  option,  retain  as  and  for  full  liquidated 
damages  the  said  sum  of  $2,500  *  *  ♦  and  thereafter  the  party 
of  the  second  part  shall  have  no  further  right,  claim  or  interest  in  and 
to  the  said  $2,500  or  any  part  thereof."  Shall  the  upper  court  sus- 
tain the  judgment  of  the  lower  court?  (Advance  Amusement  Co.  v. 
Franke,   268    111.    579.) 

93.  A  made  a  contract  with  B  to  convey  several  distinct  tracts 
of  land ;  on  failure  to  convey  any  tract,  damages  to  be  $10,000. 
Should  the  court  enforce  this  provision?  (Watts  v.  Sheppard,  2  Ala. 
425.) 

CHAPTER  11. 

94.  State  the  general  rule  as  to  the  operation  of  contracts. 

CHAPTER  12. 

95.  Summarize  briefly  the  law,  as  given  in  the  text,  of  the  right 
of  a  beneficiary  to  sue  on  a  contract. 

CHAPTER  13. 

96.  Define  assignment. 

97.  B  agreed  to  supply  K.  a  cake  manufacturer,  all  the  eggs 
required  in  K's  business  for  one  year,  K  agreeing  not  to  buy  else- 
where during  that  period.  Statements  of  account  were  to  be  ren- 
dered every  fourteen  days,  B  to  draw  for  the  amount  at  two  months 


Questions  and  Problems,  243 

from  dati?  of  delivery.  K  thereafter  purchased  another  company,  and 
K  then  transferred  the  old  and  new  business  to  a  new  company  called 
George  Kemp,  Limited,  of  whose  20,000  shares  he  held  all  but  seven. 
When  B  heard  of  this  amalgamation  he  refused  to  supply  the  eggs  to 
the  new  company  and  claimed  that  his  contract  was  at  an  end. 
K  sues,  claiming  breach.  Can  K  recover?  (Kemp  v.  Baerselman 
(1906),  2  K.  B.   (Eng.)   604,  2  British  Ruling  Cases  436.) 

98.  A,  an  employee  of  B,  is  accustomed  to  receive  his  salary 
from  B  at  the  end  of  every  month.  On  the  first  of  July  he  asks  B 
to  advance  him  his  July  salary,  which  B  does.  On  July  30  A  goes 
to  the  office  of  C,  a  money  lender,  and  borrows  a  sum  of  money  from 
him,  assigning  his  July  salary  (which  is  not  known  to  C  to  be  paid) 
as  security  therefor.  On  August  first  A  is  rightfully  discharged  by  B. 
On  August  Slst,  A,  not  having  worked  during  tne  month,  goes  to  D, 
another  money  lender,  and  purports  to  assign  his  August  salary, 
which  he  represents  to  be  earned  and  unpaid.  C  and  D  having  given 
notice,  and  being  refused  payment,  begin  suit  against  B.  Can  either 
recover  ? 

99.  A  employed  by  B  assigned  his  right  to  money  due  from  B. 
In  a  suit  by  the  assignee  B  set  up  that  A,  before  the  assignment, 
was  liable  for  a  failure  to  fulfill  his  contract  to  sell  at  the  highest 
market  price.  C,  the  assignee,  knew  nothing  of  this  defense  at  the 
time  he  accepted  the  assignment,  and  he  paid  A  the  full  face  value  of 
the  money  due  from  B.  Is  the  defense  good  against  C?  (Mackenzie 
v.  Hodgkin,  126  Cal.  591.) 

100.  Is  a  check  an  assignment  of  the  fund  in  the  bank? 

CHAPTER  14. 

101.  A,  a  laundry  owner,  would  not  join  a  laundry  association. 
The  members  thereof  procured  those  dealing  with  her  to  break  off  their 
contracts.  She  sues  the  members.  Has  she  any  case?  (Doremus  v. 
Hennessy,  176  111.   608.) 

102.  A  works  for  M  on  a  salary  of  $5,000  a  year  under  a  five 
year  contract.  N,  a  competitor,  offers  him  $6,000  a  year  and  A  quits 
M  to  accept  N's  offer.     Has  M  any  case  against  N? 

CHAPTER  15. 

103.  Meaning  of  phrase  "discharge  of  contract"? 

104.  A  employed  B  to  write  a  legal  article  for  an  encyclopedia, 
at  a  stipulated  price,  subject  to  A's  satisfaction  therewith  when 
written.  B  wrote  a  good  article,  but  A  rejected  it  on  the  ground  he  was 
not  satisfied.  B  sues  for  damages.  What  result?  (Walker  v.  Ed- 
ward Thompson  Co.,  56  N.  Y.  S.  326.) 


244  Questions  and  Problems. 

105.  When  is  tender  of  performance   sufficient? 

106.  State   the   rule  of  substantial   performance. 

CHAPTER  16. 

107.  W  agreed  with  H  to  find  a  purchaser  within  a  year  for  a 
certain  tract  of  land  at  $30  per  acre.  He  is  now  sued  on  that  agree- 
ment. He  defends  that  it  was  impossible  to  find  such  purchaser.  Is 
the  defense  good?     (Harless  v.  Wiley,  91  Kan.  L.  R.  A.  1915  C.) 

108.  A  was  B's  stepfather.  The  stepson  agreed  to  support  tbe 
stepfather  for  the  rest  of  his  life  and  keep  up  his  life  insurance  dues 
if  A  would  name  B  his  beneficiary  in  the  contract.  The  stepfather 
lived  in  B's  home  for  five  years,  and  B  kept  up  the  dues.  A's  physical 
condition  became  such  that  it  became  a  great  hardship  upon  B,  and 
a  disagreeable  task  for  B  to  care  for  him.  A  was  thereupon  sent  to 
the  poorhouse,  where  shortly  after  he  died.  After  leaving  B's  home, 
A  changed  his  beneficiary  to  M.  B  claims  that  A's  condition  dis- 
charged him  from  the  contract,  and  that  he  is  entitled  to  reasonable 
compensation  for  A's  board  and  reimbursement  for  the  dues ;  or,  if  that 
Is  denied,  then  that  conceding  he  broke  the  contract,  he  is  entitled  to 
the  same  thing  as  for  benefits  rendered  on  an  implied  agreement.  Are 
either  these  contentions  sound?  (Ptacek  v.  Pisa,  231  111.  522,  14 
L.  R.  A.  N.   S.  537.) 

109.  A  contract  was  made  that  A  should  manage  a  number  of 
parcels  of  improved  real  estate  belonging  to  B  for  the  term  of  five 
years,  collecting  the  rents,  making  repairs  and  paying  over  the  net 
balance  remaining  in  his  hands  the  15th  of  each  month.  For  these 
services  he  received  a  commission  upon  the  amounts  collected  and  the 
use  of  an  office.  The  contract  contained  the  provision  "that  the 
covenants  in  this  contract  shall  succeed  to  and  be  binding  upon  the 
respective  heirs,  executors,  administrators  and  assigns  of  the  parties 
hereto."  B  died.  His  heirs  and  his  administrator  give  notice  to  A 
that  his  services  are  no  longer  wanted.  A  sues  for  breach  of  con- 
tract. Can  he  recover?  (Iloman  v.  Redick,  L.  R.  A.  1915  C.  N. 
(Nebr.)   601.) 

110.  Define  novation  ;   merger. 

111.  What  is  the  statute  of  limitations? 

CHAPTER  17. 

112.  State  the  rale  of  damages  in  contract  cases. 

113.  Will  the  remedy  of  specific  performance  be  given  in  every 
case?    State  the  rules  and  give  illustrations. 

114.  When  will  a  court  enjoin  the  breach  of  a  contract? 


INDEX  TO  CONTRACTS.  ] 


(References  are  to  sections.    Numbers  preceded  by  letter  A  '\ 

indicate  that  the  section  is  in  General  Survey.)  '. 

A. 

Acceptance,  i 

see,  also,  "Offer  and  Acceptance."  li 

of   benefits,   as   waiving  breach,    133.  •■ 

Adequacy  of  consideration,  50.  i 

Administrator,  ^ 

when  contract  of  must  be  in  writing,  85.  i 

Agent,  ! 
when  authority  must  be  sealed,  79. 

Aliens,  \ 

power  to  contract,  15.  { 

Assignment  of  contracts, 
in  general,  116. 

power  to  assign  rights,  117,  119. 

power  to  assign  obligations,  118,  i 

to  be  made  in  future,  120.  ' 

effect  of,  as  to  assignor,  121.  1 

effect  of  as  to  debtor,  122,  123.  " 

what  constitutes,   124.  i 

by  operation  of  law,  125.  * 

B. 

Bankruptcy  as  discharge,   143. 

Beneficiaries  may  sue  when,  113-115.                          ,  i 

Branches  of  Municipal  Law,  A4.  • 

Breach  of  contract,  132,  135.  - 

245  : 


246  Index. 

C. 

Capacity  of  parties  to  contract, 

in  general,  S. 

of  minors, 

who  are  minors,  6. 
to  contract  for  necessaries,  8. 
to  contract  in  other  respects,  7. 
ratification,    10. 

of  married  women,  12. 

of  insane  persons,   13. 

of  drunken  persons,   14. 

of  aliens,  15. 

of  corporations,  16, 
Common   Law,   17. 
Composition  with  creditors,  56. 
Compromise  of  claim,  56. 
Consideration, 

an  essential  element,  49. 

defined,  49. 

adequacy  of,  50. 

may  consist  in  promise,  51. 

past  act  as,  52. 

obligation  imposed  by  law  as,  53. 

promise  to  perform  contract  as,  54. 

part  payment  of  debt  as,  55. 

settlement  of  dispute  as,  56. 

forbearance  as,  57. 

compromise  as,  56. 

to  support  composition,  55. 

to  support  subscription,  58. 
Constitutional  Law, 

defined,  A5. 

federal,  A6. 

state,  A7. 
Construction  of  contract, 

general   rules   of,   103,  104. 

in  respect  to  time,  105,  106. 

in  respect  to  damages,  107. 
Contract  under  seal,  see  "Seal." 
Courts,  A21-24. 
Criminal  law  defined,  A9. 


Index.  247 


Damages, 

liquidated,  107-111. 

rules  of,  145-147. 
Discharge  of  contracts, 

meaning  of,  129. 

by  performance,  130,  131,  136, 

by  breach,  132,  135. 

by  tender,   133,   134, 

by  impossibility,   138. 

by  alteration,   139. 

by  novation,  140. 

by  merger,   141. 

by  agreement,  142. 

by  bankruptcy,  143. 

by  limitations,  144. 
Duress, 

defined,   145. 

avoidance  on  account  of,  48. 

ratification  of,  49. 


Equity,  court  of,  A22. 
Executed  contracts,  3. 
Executory  contracts,  3. 
Executors,  contracts  of,  85. 


E. 


F. 


Formal  contracts, 

defined,  1,  77-80. 
Fraud  in  inception, 

defined,  34. 
Fraud  in  inducement, 

effect  of,  on  contract,  36. 

statements  of  fact  as,  37. 

opinions   and  predictions  as,  38. 

concealment  as,  39. 

silence  as,  40-43. 

summary  as   what  constitutes,  44. 

avoidance  on  account  of,  48. 

ratification  of,  49. 


248                                   Index.  " 

I 
Frauds,   Statute   of, 

described,  82.  ' 

text  of,  83.  ,1 

nature  of,  84.  ' 

cases  within,  ^ 

promises   of  executors,  85.                              ^  i 

promises  of  guarantors,  86.                             '  'i 

promises  in  consideration  of  marriage,  87.  i 

contracts  for  sale  of  interest  in  land,  88,  \ 

contracts  not  to  be  performed  within  year,  89.  } 

sales  of  personal  property,  90,  \ 

memorandum  and  signature,  91.  j 


G. 

Gambling  contracts,  64. 

Guaranties,  must  be  in  writing,  86. 

L 

Illegality  of  contracts, 

in  restraint  of  trade,  60. 

for  monopolies,  61. 

limiting  liability,  62. 

of  usury,  63. 

of  wagers,  64. 

tending  to  currupt  public  service,  65. 

in  restraint  of  marriage,  66. 

made  on  Sunday,  67. 

without  licenses,  68. 

as  affected  by  intent  of  one,  69. 

remedies  in,  70-73. 

partly  legal,  partly  illegal,  74. 
Implied  contracts,  101,  102. 
International  Law  defined,  A2. 

L. 

Lands,  sale  of  must  be  in  writing,  88. 
Law  defined,  Al. 
Limitations,  statute  of,   144. 

M. 

Mail,  contracts  by,  31. 
Married  women, 

power  of,  to  contract,  7. 


Index.  249 

Minors, 

who  are,  6. 

power  of,  to  contract,  7. 

liability  of,  for  necessaries,  8. 
what  are   necessaries,  9. 

disaffirmance  of.  contracts  by,  10. 

ratification  of,  by,   10. 

liability   of,   for   torts,   11. 
Mistake, 

effect  of,  on  contract,  35. 
Monopolies,  illegal,  61. 

O. 

Offer  and  acceptance, 

necessary  to  contract,  17. 

communication  of,  necessary,   18,   19,  31. 

distinguished  from  preliminary  announcements,  20. 

indefinite  when,  21. 

incomplete  when,  22. 

duration  of  oflfer,  23-27. 

rejection  of  offer,  24. 

termination  by  destruction  of  subject  matter,  25. 

same  by  death  or  insanity  of  parties,  26. 

revocation  of  oflfer,  27. 

contract  to  keep  offer  open,  28. 

what  constitutes  acceptance,  29,  30. 
Opinions  as  fraud,  38. 
Oral   contracts,   100. 
Oral  evidence,  96-99. 

P. 

Parties    to    contracts,    see    "Minors";    "Married    Women"; 

"Aliens";  etc. 
Parol  evidence  rule,  96-99. 
Performance, 

construction  as  to  time  of,  105,  106. 

what   constitutes,   130-136. 

specific  decreed  when,  148. 

Q. 

Quasi  contracts,  102. 


250                                   Index.  > 

R.  \ 

Ratification  of  contracts, 

voidable  for  various  reasons,  49.  j 

by  minors,   10.  i 

Remedy  for  breach,  ] 

by  action  for  damages,   145-147.  ' 

by  bill  for  performance,   148.  i 

by  bill  for  injunction,  149.  i 

Rescission  of  contracts,  \ 
See  "Fraud,"  "Mistake,"   "Duress,"  "Misrepresentation," 
"Undue   Influence,"  "Ratification   of  Contracts." 

Restraint  of  marriage,  illegal,  66. 

Restraint  of  trade,  when  illegal,  60.  j 

s. 

Sales, 

of  real  property,  88. 

of  personal  property,  90-95.  ,! 

Seal,  ': 

definition  of,  77.  [ 

effect  of,  78.  \ 

when  required,  79.  ti 

legislation  upon,  80.  'J 

Settlement,  ' 

of  debt  by  part  payment,  59.  i 

of  disputed  account,  60. 

Signature, 

required  by  statute  of  frauds,  18.  ' 

by  agent,  19.  j 
Silence, 

contracts  may  arise  from,  32. 

as   constituting  fraud,  40-43.  ^ 

Simple  contracts,  defined,  2.  i 

Statute   of  frauds,  see  "Frauds,   Statute  of.**  j 

Statute  of  limitations,   144.  1 

Sunday  contracts,  illegal  when,  67.  j 

Subscriptions,  58.  5 

T. 

Telegraph,  contracts  by,  31.  i 


Index.  251 

Tort, 

defined,  AlO. 

of  minors,  11. 
Trade,  contracts  in  restraint  of,  60. 

U. 

Undue  influence, 

defined,  46. 

presumed  when,  46. 

disaffirmance  and  ratification,  47.  48. 
Unilateral   contracts,  defined,  2. 
Usury,  effect  of  charging,  63. 

W. 

Wager  agreements,  6. 

Written  contracts,  see,  also,  "Statute  of  Frauds," 

classified,  2. 

not  variable  by  oral  evidence,  96-99. 
Written  law, 

defined,  A14. 


AMERICAN    COMMERCIAL    LAW   SERIES 
Second  Edition 

LAW  OF  AGENCY 

WITH 

QUESTIONS  AND  ANSWERS 


ALFRED  W.  BAYS,  B.S.,  LL.B. 

Professor  of  Law,  Northwestern  University  School  of 
Commerce,  and  Member  of  Chicago  Bar 


CHICAGO 
CALLAGHAN  AND  COMPANY 

1921 


Copyright,   1921 

BY 

CALLAGHAN  &  COMPANY 


TABLE  OF  CONTENTS. 


PART  I. 
NATURE  AND  FORMATION  OF  AGENCY. 


CHAPTER  1. 

DEFINITIONS. 

Sec.  1.  Nature  of  agency. 

Sec.  2.  The  responsibility  of  the  principal  or  master. 

Sec.  3.  The  principal  and  agent  as  one  person. 

Sec.  4.  Kinds  of  agencies. 

CHAPTER  2. 

CAPACITY   OF   PARTIES   AND   POWER   OF   DELEGATION. 

Sec.    5.     In  general. 

A.     Power  to  Be  Principal  or  Agent  as  Dependent  Upon 
Capacity  to  Contract. 

Sec.    6.     General  rule  as  power  to  be  principal. 
Sec.    7.     Minors  as  principals. 
Sec.    8.     Corporations  as  principals. 
Sec.    9.     Power  to  act  as  agent. 

II 


12  Table  of  Contents. 

B.    Power  to  Be  Principal  or  Agent  as  Dependent  Upon 
Nature  of  Act  Involved. 

Sec.  10.     Appointment  of  agent  for  illegal  purpose. 
Sec.  11.     Acts    not    delegable    because    general   public 

policy  forbids. 
Sec.  12.     Personal    duties    imposed    by    contract    not 

delegable. 


CHAPTER  3. 

THE  APPOINTMENT  OF  THE  AGENT. 

A.  Authorization  by  Act  of  Party. 

Sec.  13.     In  general. 

Sec.  14.     Formalities  required  in  appointment  of  agent. 

Sec.  15.     Elements  essential  in  appointment  of  agent. 

B.  Authority  Conferred  by  Law. 

Sec.  16.  In  general. 

Sec.  17.  Authority  of  wife  to  bind  husband. 

Sec.  18.  Authority  of  child  to  bind  parent. 

Sec.  19.  Statutory  liability  for  family  expenses. 

CHAPTER  4. 

AUTHORIZATION   BY   RATIFICATION. 

A.     Definitions  and  Essentials. 

Sec.  20.     Meaning  of  ratification. 
Sec.  21.     Essentials  of  ratification. 


Table  of  Contents,  13 

B.    What  Constitutes  Ratification. 

Sec.  22.  Express  ratification.  \ 

Sec.  23.  Silence  as  ratification. 

Sec.  24.  Ratification  by  receiving  benefits. 

Sec.  25.  Ratification  by  bringing  suit. 

C.    Results  of  Ratification. 

Sec.  26.     Ratification  cures  original  defect. 
Sec.  27.     Ratification  irrevocable. 

PART  II. 

THE  DUTIES  AND  LIABILITIES  ARISING  OUT  OF 
AGENCY. 

CHAPTER  5. 

THE  DUTIES  AND  LIABILITIES   OF  THE   PRINCIPAL 
TO   THE  AGENT. 

Sec.  28.     Agent's  right  to  compensation. 

Sec.  29.     When  compensation  considered  earned. 

Sec.  30.     Agent's    right    to    damages    where    principal 

wrongfully  revokes. 
Sec.  31.     Agent's  right  to  compensation  where  guilty  of 

breach  of  contract. 
Sec.  32.     Agent's    right    of    compensation    where    he 

abandons  service  without  his  own  fault. 

CHAPTER  6. 

THE   DUTIES   AND   LIABILITIES   OF  THE  AGENT 
TO   THE   PRINCIPAL. 

A.    The  Agent's  Obligation  of  Good  Faith. 

Sec.  33.     Duty  of  agent  to  use  good  faith.     General  rule. 
Sec.  34.     Agent  cannot  secretly  represent  both  parties. 


14  Table  of  Contents. 

Sec.  35.     Agent  cannot  buy  from,  or  sell  to,  self. 

Sec.  36.     Agent  cannot  take  secret  profits  and  benefits. 

B.    Duty  to  Obey  Instructions,  to  Use  Care  and  Skill,  etc. 

Sec.  37.     Duty  of  agent  to  obey  instructions. 

Sec.  38.     Duty  of  agent  to  use  care  and  skill. 

Sec.  39.     Agent's  duty  of  personal  performance. 

Sec.  40.     Whether  agent  is  selected  to  perform  or  to 

obtain  agent  to  perform. 
Sec.  41.     Same  subject  applied  to  collections  by  banks. 

C.    Liability  of  Agent  to  Principal  for  Default  of  Third 
Person. 

Sec.  42.     General  rule. 

Sec.  43.     Del  credere  agencies. 

CHAPTER  7. 

THE   DUTIES   AND   LIABILITIES   IN   CONTRACT   OF  A 
DISCLOSED   PRINCIPAL    (THE  AGENT's   AUTHORITY). 

Sec.  44.     General  rule. 

Sec.  45.  Unauthorized  assertions  by  agent  of  his  au- 
thority. 

Sec.  46.     Implied  and  apparent  authority  distinguished. 

Sec.  47.  Implied  and  apparent  authority  in  general  and 
special  agencies. 

Sec.  48.     Construction  of  special  appointments. 

Sec.  49.  Implied  and  apparent  power  of  agent  to  bor- 
row money. 

Sec.  50.  Implied  and  apparent  power  of  agent  to  bind 
principal  upon  commercial  paper. 

Sec.  51.  Implied  and  apparent  power  of  agent  to  sell 
personal  property. 

Sec.  52.  Implied  and  apparent  power  of  agent  who  has 
indicia  of  title  to  sell  goods. 


Table  of  Contents.  15 

Sec.  53.     Implied  and  apparent  power  of  selling  agent 

to  receive  payment. 
Sec.  54.     Implied    and    apparent    authority    of    selling 

agent  to  extend  credit  on  sales. 
Sec.  55.     Implied  and  apparent  power  of  buying  agent 

to  buy  on  credit. 
Sec.  56.     Implied  and  apparent  power  to  warrant. 
Sec.  57.     Admissions  of  agent. 
Sec.  58.     Authority  of  agent  to  receive  notice. 

CHAPTER  8. 

UNDISCLOSED   PRINCIPALS. 

Sec.  59.     General  rule. 

Sec.  60.     First  exception  to  rule. 

Sec.  61.     Second  exception  to  rule. 

Sec.  62.     Third  exception  to  rule. 

Sec.  63.     Fourth  exception  to  rule. 

Sec.  64.     Where  alleged  undisclosed  principal  had  not 

conferred  authority. 
Sec.  65.     Undisclosed    principal's    right    to    hold    third 

person. 

CHAPTER  9. 

principal's  liability  for  torts  of  agent. 

Sec.  66,  Authorized  torts 

.Sec.  67.  Ratified  torts. 

Sec.  68.  Liability  for  torts  within  scope  of  authority. 

Sec.  69.  What  torts  within  scope  of  authority. 

CHAPTER  10. 

THE   DUTIES   AND   LIABILITIES   OF   THE   AGENT  TO 
THE   THIRD   PERSON. 

Sec.  70.     General  statement. 


1 6  Table  of  Contents. 

A.    Liability  of  Agent  in  Contract. 

(a)  The  agent  warrants  his  authority. 
Sec.  71.     Warranty  of  authority  by  agent. 

(b)  Agent  may  bind  himself  on  contract. 
Sec.  72.     General  statement. 

Sec.  73.     Principal  undisclosed. 

Sec.  74.     When  agent  bound  on  sealed  instruments  by 

form  of  his  execution. 
Sec.  75.     When  agent  bound  on  negotiable  paper  by 

form  of  his  execution. 
Sec.  76.     When  agent  bound  on  other  contract  oy  lorm 

of  his  execution. 
Sec.  77.     Agent  bound  where  no  responsible  principal. 

B.    Liability  of  Agent  in  Tort. 

Sec.  78.     Agent  responsible  for  his  torts. 


PART  III. 
PROFESSIONAL  AGENTS. 

CHAPTER  11. 

A.  Factors. 

Sec.  79.  Definition  of  factor. 

Sec.  80.  Duties  of  factor. 

Sec.  81.  Implied  authority  of  factor. 

Sec.  82.  Same  as  to  third  persons. 

Sec.  83.  Factor's  lien. 

B.  Brokers. 

Sec.  84.     Definition. 

Sec.  85.     Kinds  of  brokers. 

Sec.  86.     Authority  of  broker. 


Table  of  Contents.  17 

C.    Auctioneers. 

Sec.  87.  Auctioneers  defined. 

Sec.  88.  Auctioneer's  authority. 

Sec.  89.  When  sale  by  auction  takes  place. 

Sec.  90.  "By  bidding." 

PART  IV. 
TERMINATION  OF  RELATIONSHIP. 

CHAPTER  12. 

TERMINATION    BY   ACT   OF    PARTIES. 

Sec.  91.  By  terms  of  original  agreement. 

Sec.  92.  By  accomplishment  of  object. 

Sec.  93.  Revocation  by  act  of  principal. 

Sec.  94.  Irrevocable  agencies. 

Sec.  95.  When  principal  has  right  to  revoke. 

Sec.  96.  Termination  by  agent. 

Sec.  97.  Notice  of  revocation  to  agent. 

Sec.  98.  Notice  to  third  persons. 

CHAPTER  13. 

REVOCATION    BY   OPERATION   OF   LAW. 


Sec. 

99. 

By  death  of  principal 

Sec. 

100. 

By  death  of  agent. 

Sec. 

101. 

By  insanity  of  party. 

Sec. 

102. 

By  bankruptcy. 

Sec. 

103. 

By  war. 

Bays — 2 


LAW  OF  AGENCY. 


PART  I. 
NATURE  AND  FORMATION  OF  AGENCY. 


CHAPTER  1. 

DEFINITIONS. 

Sec.  1.  NATURE  OF  AGENCY.  If  one  appoints  another 
to  do  an  act  for  him  as  the  act  of  the  appointing  party,  such 
appointing  party  is  known  as  the  principal  or  master  and  the 
other  party  the  agent  or  servant — agent  if  the  work  he  is  ap- 
pointed to  do  is  that  of  contractual  negotiation  with  others; 
servant,  if  the  work  he  is  appointed  to  do  does  not  involve  con- 
tractual negotiation. 

When  a  person  procures  another  to  do  something  for 
him,  we  have  the  following  possibilities: 

First:  The  person  procured  to  do  the  work  may 
undertake  results  in  the  accomplishment  of  which  he 
acts  as  independently  of  the  one  procuring  him  as  such 
party  does  of  him — they  are  independent  contractors. 

Second:  The  person  procuring  the  work  to  be  done 
may  by  his  arrangement  with  the  other  establish  a  more 
or  less  general  control  over  the  work  to  be  done  in  the 

T9 


20  Law  of  Agency. 

nature  of  a  proprietary  interest  in  the  services  rendered, 
so  that  such  work,  though  done  by  another,  is  really,  as 
to  the  responsibility  therefor,  the  work  of  the  appoint- 
ing party.     In  such  case 

(1)  The  work  appointed  to  be  done  may  be  to  nego- 
tiate contractually  with  others — and  then  we  call  the 
appointing  party  the  principal  and  the  appointee  the 
agent ; 

(2)  The  work  appointed  to  be  done  may  be  of  a 
different  character,  being  perhaps  (but  not  necessarily) 
work  done  in  the  performance  of  the  principal's  con- 
tracts with  others,  but  not  creating  those  contracts. 
In  such  case  we  call  the  appointing  party  the  master, 
and  the  appointee,  the  servant. 

It  is  seen  at  once  that  inasmuch  as  the  work  of  the 
agent  is  to  negotiate  contractually  with  others,  the  rights 
of  the  principal  against,  and  his  obligations  towards, 
such  others  arising  out  of  the  contracts  made  by  the 
agent  make  up  a  big  subject  which  is  necessarily  lacking 
in  the  relationship  of  master  and  servant.  In  the  two 
relationships  we  have  these  principle  considerations: 

In  Agency 

1.  The  rights  and  duties  between  the  principal 

and  agent 
— in  contract 
— in  tort. 

2.  The  rights  and  duties  between  the  principal  and 

third  person  arising  out  of  contracts  made  by 
the  agent  pursuant  to  his  authority; 

3.  The  obligations  of  the  principal  to  third  persons 

for  the  torts  of  hid  agent; 

4.  The  rights  and  obligations  between  the  agent 

and  third  persons. 


American  Commercial  Law.  21 

In  Master  and  Servant 

1.  The  rights  and  obligations  in  contract  and  tort 

(and    also    under    workmen's    compensation 
acts)  between  master  and  servant. 

2.  The  obligations  of  the  principal  to  third  persons 

for  the  torts  of  his  servant. 

Thus  we  see  that  the  scope  of  the  work  of  the  servant 
and  the  scope  of  the  work  of  the  agent  takes  us  into  a 
field  which  both  traverse,  and  in  a  separate  field  of  vast 
importance  traversed  only  by  the  agent — the  field  that 
involves  the  authority  of  the  agent  to  make  contracts 
for  his  principal.  Fundamentally  the  relationship  in 
either  case  is  that  of  service.  And  the  reason  that  we 
distinguish  is  that  in  their  incidents  and  consequences 
they  go  far  apart. 

The  fundamental  sameness  of  the  relationships  is  seen 
in  the  fact  that  one  may  at  one  moment  be  agent,  and 
in  the  next  moment  while  on  the  same  work,  be  servant. 
Employed  to  purchase  goods,  one  becomes  a  servant  to 
haul  them  home;  employed  as  a  store  clerk,  his  miscel- 
laneous duties  are  now  those  of  agent,  now  those  of 
servant.!    fhe  examples  below  will  illustrate  this  section. 

Example  1.  A  owns  a  garage  and  repair  shop.  He 
contracts  with  B,  a  customer,  to  overhaul  B's  car.  C 
works  for  A  and  assists  in  working  on  B's  car.  B  sends 
his  chauffeur  for  the  car  and  directs  him  to  buy  a  new 
tire  from  A  on  B's  credit.  A  has  what  is  called  an 
authorized  agency  for  these  tires,  but  as  a  matter  of 
fact  he  buys  the  tires  from  the  manufacturer  under  a 
contract  by  which  for  a  period  the  manufacturer  agrees 
to  supply  what  A  orders.  In  this  illustration  A  and  B 
are  independent  contractors.     C  is  A's  servant.     The 

1.     Kingan  v.  Silvers,  13  Ind.  Ap.  80;  37  N.  E.  413. 


22  Law  of  Agency. 

chauffeur  is  B's  agent  to  get  the  car  from  A,  and  to 
purchase  the  tire,  and  B  s  servant  to  drive  the  car 
home.  A  is  not  an  agent  of  the  tire  manufacturer, 
though  so  called,  being  merely  a  purchaser  from  him 
for  purposes  of  retail.  If  A  received  such  tires  from  the 
manufacturer  to  resell  upon  a  commission,  A  would  be 
the  kind  of  agent  known  as  3i  factor  (see  post  herein). 

Example  2.  Echols  was  charged  with  having  em- 
bezzled, as.  an  agent  or  servant,  money  belonging  to  his 
employer,  Echols  was  a  tailor,  and  had  undertaken  to 
make  a  suit  of  clothes  for  his  customer  who  had  paid 
him  money  in  advance.  He  did  not  make  the  clothes 
or  return  the  money.  The  charge  must  fail.  The 
money  when  paid  to  Echols  became  his.  He  was  liable 
civilly  to  the  customer  for  breach  of  contract,  but  not 
criminally  liable  for  embezzlement.  If  the  customer  had 
given  Echols  $10.00  with  which  to  buy  cloth  for  him, 
and  he  had  misappropriated  it,  he  would  then  be  taking 
the  customer's  money  .2 

Example  3.  A  manufactures  sewing  machines.  He 
sells  some  machines  to  B,  who  resells  to  customers.  He 
•gives  C  a  contract,  whereby  C  sells  sewing  machines  for 
A  from  house  to  house.  B  is  not  A's  agent.  C  is,  and 
A  is  liable  for  his  acts  within  the  scope  of  the  employ- 
ment.^ 

Sec.  2.  THE  RESPONSIBILITY  OF  THE  PRINCIPAL 
OR  MASTER.  The  underlying  idea  in  the  law  of  agency  is 
that  the  principal  (or  master)  is  responsible  for  that  which 
the  agent  (or  servant)  does  in  the  line  of  his  employment. 

~"Qui  facit  per  alium  qui  facit  per  se,"  runs  the  Latin 
maxim.     ''Respondeat  superior''  is  another  one.     That 

2.  Echols  V.  State,  158  Ala.  48. 

3.  Singer  Mfg.  Co.  v.  Rahn,  132  U.  S.  518. 


American  Commercial  Law.  23 

which  the  agent  or  servant  does  within  the  scope  of  his 
agency  renders  the  principal  or  master  responsible 
therefor.  It  is  his  act,  done  by  him,  through  another. 
The  principal  is  therefore  liable  for  the  contracts  made 
by  the  agent  which  the  principal  has  authorized,  and 
for  the  torts  of  the  agent  or  servant,  though  he  has  not 
authorized  them,  and  has  in  fact  forbidden  them,  when 
they  are  a  part  of  the  act  done. 

Sec.  3.  THE  PRINCIPAL  AND  AGENT  AS  ONE  PER- 
SON. The  principal  and  agent  and  master  and  servant  are 
in  law  deemed  to  be  one  person  for  the  purposes  of  the  agency. 

Carrying  the  idea  of  the  last  section  a  little  further, 
we  may  think  of  principal  and  agent  or  master  and  ser- 
vant as  one  person  in  the  fiction  of  the  law.  "They  are 
famed  to  be  all  one  person. "*  The  principal  is  pre- 
sumed to  be  present  in  the  person  of  his  agent  doing 
the  act,  so  that  in  the  phraseology  of  the  law  we  may 
say  "Now  comes  John  Smith,  in  his  own  person,  and 
comes  Henry  Jones  by  his  attorney  or  agent."  In  such 
a  case  John  Smith  and  Henry  Jones  are  both  legally 
present.  Thus  in  a  stockholders'  meeting  some  are 
present  in  person,  some  by  proxy,  but  all  are  there  who 
come  either  way.  For  this  reason  that  act  which  the 
agent  does  for  his  principal,  the  principal  is  chargeable 
with  as  soon  as  it  is  done,  and  before  any  communica- 
tion thereof  to  the  principal.  The  collection  made  in 
New  York  for  a  Chicago  principal  is  collection  by  the 
principal,  though  the  principal  never  in  fact  receives  it. 
If  the  agent  has  authority  to  do  the  act,  or  the  act  (being 
a  tort)  is  done  as  a  part  of  the  act  which  the  agent  has 
authority  to  do,  the  act  of  the  agent  is  the  act  of  the 
principal  because  their  identities  are  merged. 

4.     Dempsey  v.  Chambers,  154  Mass.  330. 


24  Law  of  Agency. 

Sec.  4.     KINDS  OF  AGENCIES. 

At  this  point  we  will  merely  note  the  following  distinc- 
tions, making  more  particular  discussion  hereafter. 

(a)     General  and  Special  Agents. 

Courts  speak  of  agents  as  beitig  either  general  or 
special;  a  general  agent  being  one  to  whom  a  line  of 
action  is  committed,  as  to  manage  a  store;  a  special 
agent,  one  who  has  authority  to  do  a  certain  act  as  to 
collect  a  note.  This  distinction  has  been  criticized,  but 
practically,  it  serves  a  useful  purpose.  See,  later,  the 
authority  of  the  agent, 

(b)  Agents  del  credere  and  not  del  credere. 

A  del  credere  agent  undertakes  the  exceptional 
responsibility  of  answering  to  the  principal  for  the 
responsibility  of  all  accounts  established  through  his 
agency.     The  subject  is  developed  hereafter. 

(c)  Classification  as  to  skill  or  profession. 

There  are  various  classes  of  agents  whom  we  may 
properly  term  professional  agents — as  brokers,  factors, 
auctioneers  and  attorneys  at  law.  See  a  further  dis- 
cussion hereafter. 


CHAPTER  2. 

CAPACITY  OF  PARTIES  AND  POWER  OF 
DELEGATION. 

Sec.  5.  IN  GENERAL.  The  power  of  a  person  to  act  as 
principal  or  to  act  as  agent  involves  the  general  subject  of 
the  legal  competency  of  classes  of  persons.  The  power  of  any 
person  to  be  principal  or  agent  as  to  certain  classes  of  acts  is 
another  subject  entirely,  but  the  two  may  fitly  be  discussed 
together  at  this  point. 

A.    Power  to  Be  Principal  or  Agent  as  Dependent  Upon 
Capacity  to  Contract. 

Sec.  6.  GENERAL  RULE  AS  TO  POWER  TO  BE 
PRINCIPAL.  The  general  rule  is  that  whatever  one  has 
capacity  to  do  himself  he  has  capacity  to  appoint  another  to  do 
for  him. 

If  one  has  legal  capacity  and  legal  right  to  do  a  thing 
himself  (though  he  may  lack  the  requisite  skill  or 
knowledge)  he  may  do  that  thing  through  another.  If 
he  may  contract  himself,  he  may  employ  an  agent  to 
make  the  contract  for  him.^ 

If  he  has  no  legal  capacity  to  bind  himself  upon  a 
contract,  he  cannot  acquire  that  capacity  by  employ- 
ing an  agent. 

Sec.  7.  MINORS  AS  PRINCIPALS.  A  minor's  contract, 
except  contracts  to  pay  for  necessaries  actually  supplied,  is 

5.     Greenwood  v.  Spring,  54  Barb.  (N.  Y.)  375. 

25 


26  Law  of  Agency. 

voidable  whether  made  by  him  or  through  an  agent,  but  ac- 
cording to  some  authorities  a  minor's  appointment  of  an  agent 
is  void,  and  everything  done  by  virtue  thereof  is  void. 

With  the  exception  of  his  liability  to  pay  for  necessaries 
supplied  to  him,  a  minor's  contracts  are  voidable,  not 
void,  that  is,  he  may  withdraw  from  them  if  he  wishes, 
although  the  other  party  is  bound  unless  the  minor 
avoids  the  contract.  It  would  seem  logical  that  the 
power  of  the  minor  to  contract  through  an  agent,  and 
the  appointment  of  the  agent  itself  would  be  subject 
to  the  same  observations.^  And  such  is  the  rule  in 
some  jurisdictions.  But  in  other  jurisdictions  the  de- 
cisions are  that  the  appointment  of  an  agent  is  utterly 
void,  and  therefore  everything  done  by  virtue  thereof 
is  void.'^ 

Sec.  8.  CORPORATIONS  AS  PRINCIPALS.  A  corpo- 
ration can  act  only  through  agents  and  has  the  power  to  ap- 
point agents  and  servants  for  the  purpose  of  doing  anything 
within  its  express  or  implied  charter  powers. 

Corporations  being  intangible  creations  of  the  law, 
can  act  only  through  agents.  The  power  of  a  corpora- 
tion to  do  an  act  is  determined  by  its  charter.  Hence 
any  agency  created  for  the  performance  of  an  act  beyond 
the  corporate  power  would  not  be  binding  upon  it, 
although  if  the  act  were  actually  done,  so  that  the 
corporation  had  derived  a  benefit  therefrom,  under  some 
authorities  the  act  would  be  binding,  and  under  others 
not  binding,  except  that  the  corporation  would  be  liable 
upon  a  quasi  contractual  basis  for  the  reasonable  value 
of  the  benefits.^ 

6.  Coursole  v.  Weyerhouser,  69  Minn.  328;  72  N.  W.  697. 

7.  Cole  V.  Pennoyer,  14.  111.  158;  McDonald  v.  Spring  Valley, 
285  111.  52. 

8.  See,  generally,  the  law  of  corporation.s,  in  this  series. 


American  Commercial  Law.  27 

Sec.  9.  POWER  TO  ACT  AS  AGENT.  Any  person, 
though  without  power  to  contract  in  his  own  right  may  act 
as  an  agent  for  another. 

A  person  must  be  capable  of  acting  in  his  own  right 
(sui  juris)  to  be  principal,  for  the  simple  reason  that 
what  he  has  no  power  to  do  personally  he  cannot  acquire 
power  to  do  by  doing  it  through  another.  But  what 
one  may  not  do  for  himself  because  he  lacks  capacity 
he  may  do  for  another  who  has  the  capacity.^  He  may 
not,  of  course,  bind  himself  upon  a  contract  of  agency  if 
he  lacks  capacity  to  contract,  but  he  may,  if  he  chooses, 
actually  perform  the  function  of  an  agent.  Thus, 
minors  may  act  as  agents  and  the  contracts  made  by 
them  in  the  name  of  the  principals  and  pursuant  to 
authority  are  binding  upon  such  principals.  The  reason 
is  that  the  agent  does  not  bind  himself  but  acts  as  a 
mere  intermediary  through  which  the  minds  of  the  con- 
tracting parties  meet,  whereupon  the  agent  has  per- 
formed his  office. 

Example  4.  P  sends  his  office  boy  to  buy  supplies 
on  P's  credit  from  T.  The  boy  orders  the  supplies 
according  to  his  authority.  This  makes  a  contract 
between  P  and  T  as  binding  as  though  they  had  con- 
tracted personally. 

B.     Power  to  Be  Principal  or  Agent  as  Dependent  Upon 
Nature  of  Act  Involved. 

Sec.  10.  APPOINTMENT  OF  AGENT  FOR  ILLEGAL 
PURPOSES.  An  appointment  of  an  agent  for  an  illegal  pur- 
pose is  void. 

If  the  agent  is  appointed  for  an  illegal  purpose,  the 
appointment  is  void.     Obviously  any  agency  is  illegal 

9.     Lyons  v.  Kent,  45  Ala.  656. 


28  Law  of  Agency. 

which  is  for  the  purpose  of  a  commission  of  a  crime. ^^  In 
such  a  case  whatever  the  pretense,  all  are  principals.  So 
an  attempted  agency  to  procure  the  commission  of  a 
tort  would  make  all  liable  as  joint  tort  feasors. 

Any  agency  whose  tendency  is  to  induce  the  agent 
to  break  faith,  or  to  corrupt  the  public  service,  is  void, 
although  no  actual  harm  results.  It  is  the  tendency 
which  makes  it  void.  Thus,  for  illustration,  agents  ap- 
pointed for  lobbying  purposes, ^^  marriage  brokage  con- 
tracts,^2  are  illegal  and  void. 

Sec.  11.  ACTS  NOT  DELEGABLE  BECAUSE  GEN- 
ERAL  PUBLIC  POLICY  FORBIDS.  Some  acts  are  by 
public  policy  made  inherently  personal  and  therefore  cannot  be 
delegated. 

(a)     Official  duties  for  whose  performance  the  person  has 
been  chosen  for  his  personal  gnalifications . 

Any  duty  for  the  performance  of  which  a  particular 
person  has  been  chosen  manifestly  cannot  be  delegated. 
Thus  the  discretionary  and  judicial  duties  of  public  offi- 
cers, cannot  be  delegated, ^^  though  merely  ministerial 
acts  may  be  performed  by  others.  Thus,  directors  of  cor- 
porations, or  trustees,  cannot  pass  on  to  others  the 
powers  which  they  have  personally  been  chosen  to 
exercise.  Directors  cannot  attend  meetings  by  proxy; 
though  stockholders  may.^'* 

10.  Pearce  v.  Foote,  113  111.  228. 

11.  Mills  V.  Mills,  40  N.  Y.  543. 

12.  Hellen  v.  Anderson,  83  111.  Ap.  506. 

13.  Birdsall  v.  Qark,  73  N.  Y.  73. 

14.  See  subject  corporations  in  this  series. 


American  Commercial  Law.  29 

(b)  Duties  whose  delegation  would  involve  evasion  of 
personal  obligations  imposed  by  law,  encourage  cor- 
ruption, etc. 

The  power  of  the  citizen  to  vote  at  public  elections  is 
an  example  of  acts  not  delegable  for  the  reason  stated. 

Sec.  12.  PERSONAL  DUTIES  IMPOSED  BY  CON- 
TRACT NOT  DELEGABLE.  Duties  of  personal  service 
for  whom  one  has  been  selected  by  contract  cannot  be  dele- 
gated 

As  a  person  may  choose  with  whom  he  will  contract, 
and  the  relationship  of  contracting  parties  is  in  all 
respects  a  highly  personal  one,  obviously  a  party  to  a 
contract  cannot  delegate  his  personal  obligations  there- 
under without  the  consent  of  the  other  contracting 
party.     This  subject  is  discussed  hereafter. 


CHAPTER  3. 

THE  APPOINTMENT  OF  THE  AGENT. 

A.    Authorization  by  Act  of  Party. 

Sec,  13.  IN  GENERAL,  Except  as  considered  in  Part 
B  of  this  chapter  (covering  cases  not  of  true  agency)  an 
agent's  authority  must  be  traceable  to  something  the  princi- 
pal has  said  or  done  whereby  he  has  actually  conferred,  or 
whereby  to  third  persons  he  seems  to  have  conferred,  the  au- 
thority in  question,  with  the  qualification  that  he  may  con- 
fer the  authority  by  ratification  after  the  agent  has  acted  as 
well  as  by  prior  authority. 

An  appointment  of  an  agent  is  a  matter  of  agreement 
between  principal  and  agent. ^^  The  principal  need  not 
confer  any  more  authority  than  he  wishes.  The  extent 
of  the  authority  which  in  any  given  case  is  conferred, 
whether  actual,  implied,  or  apparent,  is  considered  at 
length  hereafter. 

Sec.  14.  FORMALITIES  REQUIRED  IN  APPOINT- 
MENT OF  AGENT.  In  the  appointment  no  particular  for- 
malities are  required  except  that  the  power  to  execute  an  in- 
strument under  seal  must  be  under  seal;  and  except  as  may 
be  locally  required  by  statute  for  particular  classes  of  agen- 
cies. 

The  general  rule  is  that  an  agent  may  be  appointed 
by  any  form  of  appointment;  no  particular  formalities 

15.     Central  Trust  Co.  v.  Bridges,  57  Fed.  753. 

30 


American  Commercial  Law.  31 

are  required.  Appointment  to  execute  a  contract  in 
writing  may  be  oral  or  in  writing. 

Contracts  under  seal  when  executed  by  an  agent 
require  authority  under  seal,  as  it  is  said  that  the 
authority  must  be  of  equal  dignity  with  the  deed.^^  But 
if  the  law  does  not  require  the  contract  to  be  under 
seal  or  the  seal  is  not  required  by  the  principal  the 
gratuitous  addition  of  the  seal  by  the  agent  can  be 
ignored  and  the  contract  treated  as  a  simple,  binding 
contract  if  the  agent  otherwise  pursued  his  authority.!^ 

In  those  jurisdictions  in  which  the  significance  of  the 
private  seal  has  been  abolished,  the  reasoning  above 
has,  of  course,  no  application. 

By  the  original  statute  of  frauds,  considered  at  length 
in  the  volume  on  Contracts  in  this  series,  certain  classes 
of  contracts  can  not  be  proved  in  court  against  thfe 
objection  that  there  is  no  written  memorandum  signed 
by  the  party  sought  to  be  charged,  or  by  his  agent  there- 
unto lawfully  authorized.  But  the  statute  does  not  say 
that  the  authority  of  an  agent  must  itself  be  in  writing, 
even  in  those  classes  of  cases  covered  by  the  statute. 
Hence  it  has  always  been  considered  that  under  the 
statute  of  frauds,  an  agent  of  the  defendant  may  make 
the  requisite  memorandum  and  sign  the  name  of  his. 
principal,  although  his  authority  is  oral.  This  is  still 
the  law,  except  that  in  some  states  it  has  been  further 
provided  that  in  case  of  a  contract  to  sell  real  estate,  the 
principal  is  not  bound  upon  the  contract  the  agent  may 
make,  even  if  he  pursue  his  actual  authority,  if  that 
authority  is  not  in  writing. 

Sec.  15.    ELEMENTS  ESSENTIAL  IN  APPOINTMENT 
OF  AGENT.    To  establish  the  relationship  by  contract,  all 

16.  Watson  v.  Sherman,  84  111.  263. 

17.  Worral  v.  Munn,  5  N.  Y.  229,  55  Am.  Dec.  330. 


32  Law  of  Agency. 

the  elements  essential  to  formation  of  contract  must  exist,  but 
agency  may  also  result  from  a  gratuitous  appointment. 

Agency  may  arise  out  of  contract,  and  this  is  the 
usual  case.  In  that  case  there  must  be  all  the  ele- 
ments which  are  essential  to  the  formation  of  any 
contract,  namely,  competent  parties  to  contract,  offer 
and  acceptance,  legality  of  object,  and  either  a  con- 
sideration or  a  seal.  We  need  not  here  dwell  to  any 
extent  on  a  consideration  of  these  elements,  as  that 
belongs  rather  to  a  treatment  of  contracts  in  general. ^^ 

The  relationship,  however,  need  not  be  contractual. 
It  may  be  purely  gratuitous.  In  such  a  case,  the  third 
party  with  whom  the  agent  makes  the  contract  is  not 
concerned  with  the  contractual  rights  between  principal 
and  agent.  All  that  concerns  him  is  the  authority  with 
which  the  agent  is  clothed,  and  if  that  sufficiently  ap- 
pears, that  is  all  that  is  necessary.  It  cannot  concern 
him  what  the  principal  pays  the  agent,  or  whether 
anything. 

B.  Authority  Conferred  by  Law. 

Sec.  16.     IN  GENERAL. 

In  some  cases,  as  considered  below,  one  person  may 
bind  another  without  the  consent  of  the  other,  and  even 
against  his  protest.  But  this  is  a  liability  imposed  by 
law  and  is  not  true  agency.     See  following  sections. 

Sec.  17.  AUTHORITY  OF  WIFE  TO  BIND  HUS- 
BAND. A  wife  is  given  by  law  the  authority  to  bind  hei' 
husband  for  necessaries,  where  she  is  not,  in  her  own  fault, 
living  apart  from  him,  and  the  husband  is  not  actually  sup- 
plying her. 

18.     See  contracts  in  this  series. 


American  Commercial  Law.  33 

A  husband  is  bound  to  supply  his  wife  with  necessaries 
and  if  he  does  not  provide  her,  she  has  authority  to 
bind  him  in  the  purchase  of  such  necessaries.  And  this 
authority  he  cannot  revoke,  unless  she  is  living  apart 
from  him  on  account  of  her  own  fault.  If  she  is  actu- 
ally supplied,  then,  of  course,  she  cannot  bind  the 
husband.  Accordingly  a  merchant  who  supplies  a  wife 
goods  on  the  credit  of  her  husband,  must  take  the  risk 
that  she  is  not  already  being  supplied  with  her  needs,  un- 
less he  relies  on  an  implied  authority  of  the  wife  to  bind 
the  husband,  growing  out  of  the  special  circumstances. 
For  there  may  be  quite  an  extensive  authority  on  the 
part  of  the  wife  to  bind  the  husband,  quite  apart  fijom 
this  authority  conferred  by  law,  growing  out  of  each 
case,  as  where  the  husband  as  a  practice  permits  the 
wife  to  trade  in  his  name,  and  that  is  her  custom.  That 
authority  he  may  at  any  time  revoke.  But  the  authority 
to  bind  him  for  her  necessaries  which  he  is  not  supplying 
cannot  be  revoked.  If  he  absents  himself  from  her,  the 
authority  to  bind  him  still  continues. 

What  constitutes  a  necessary  depends  on  circum- 
stances. The  station  in  life  is  to  be  considered.  Yet  a 
thing  is  not  a  necessary  except  it  have  reference  to 
actual  needs,  as  food,  clothes,  fuel,  lodging,  medicine, 
etc. 

Sec.  18.  AUTHORITY  OF  CHILD  TO  BIND  PARENT. 
The  law  confers  no  authority  upon  the  child  to  bind  the  par- 
ent. But  authority  to  bind  the  parent  may  be  implied  from 
the  circumstances. 

The  law  does  not  confer  authority  on  the  child  to 
bind  the  parent,  though  under  the  circumstances  of  any 
particular  case  that  authority  might  be  readily  inf erred. ^^ 

19.     Hunt  V.  Thompson,  3  Scam.  (111.)  179;  36  Am.  Dec.  538. 
Bays — 3 


34  Law  of  Agency. 

In  fact  from  very  slight  circumstances  the  courts  will 
find  an  authority  for  the  child  to  bind  the  parent  for  his 
necessaries. 

Sec.  19.  STATUTORY  LIABILITY  FOR  FAMILY  EX- 
PENSES. In  some  states  a  statutory  liability  is  provided 
that  either  husband  or  wife  may  be  held  for  family  expenses. 

In  some  states,  the  statute  has  provided  substantially 
to  the  effect  that  any  purchases  of  articles  for  household 
or  family  use  are  binding  upon  either  wife  or  husband. 


CHAPTER  4. 

AUTHORIZATION  BY  RATIFICATION. 

A.    Definition  and  Essentials. 

Sec.  20.  MEANING  OF  RATIFICATION.  If  one  acts 
as  an  agent  and  yet  without  authority,  the  party  for  whom  he 
purported  to  act  may  hold  the  third  person,  and  is  himself 
liable  to  such  third  person,  by  an  election  to  stand  by  and 
affirm  what  the  agent  has  done  in  his  behalf. 

One  cannot  be  held  by  the  act  of  another  unless  he 
has  really  or  apparently  authorized  that  other  to  repre- 
sent him  in  the  matter  in  question.  One  who  acts  as 
an  agent  may  have  no  authority,  or,  having  some 
authority,  may  not  have  the  particular  authority 
requisite  to  the  case  at  hand.  In  such  a  case  the  prin- 
cipal is  not  bound  unless  he  cares  to  ratify  what  has  been 
done  in  his  behalf.  If  he  does  ratify,  he  becomes 
bound  as  though  the  agent  had  had  previous  authority, 
and  the  third  person  becomes  bound  to  him.  The  lack 
of  authority  has  been  supplied.  This  is  no  injustice 
upon  the  third  person  as  it  merely  brings  matters  t6  the 
state  in  which  he  supposed  they  were  or  wanted  them 
to  be  when  he  assented  to  the  supposed  agreement. 
But  in  almost  every  case  in  which  ratification  is  claimed, 
it  is  claimed  by  the  third  person  against  an  alleged 
principal  who  pleads  lack  of  authority. 

Ratification  rests  upon  the  broad  general  principle 
that  as  a  matter  of  practical  justice,  one  who  has  assented 
to  the  act  of  his  supposed  agent  will  not  be  allowed  to 

35 


36  Law  of  Agency. 

afterwards  disclaim  it  upon  the  technicality  that  at  the 
time  the  agent  acted  there  was  lack  of  authority  which 
would  have  justified  repudiation  by  the  principal  had 
he  chosen  to  disclaim. 

Ratification  is  thus  seen  to  be  nothing  technical;  the 
rules  governing  the  subject  are  given  below. 

Sec.  21.  ESSENTIALS  TO  RATIFICATION.  To  con- 
stitute ratification  there  must  be  the  following  facts:  (1)  The 
agent  must  have  acted  as  agent;  (2)  The  act  must  be  one  that 
could  have  been  authorized;  (3)  The  ratifier  must  have  been 
in  existence  when  the  contract  was  made ;  (4)  The  ratifier  must 
be  fully  informed  as  to  the  facts;  (5)  Ratification  must  be 
of  the  entire  act;  (6)  Must  be  before  the  other  party's  with- 
drawal, and  (7)  Must  be  in  the  form  required  of  previous  au- 
thorization. 

The  essentials  enumerated  above  are  briefly  considered 
below : 

(1)     The  agent  must  have  acted  as  agent. 

Example  5,  A,  acting  as  principal  and  having  no 
authority  from  P  to  represent  him,  buys  on  his  own 
credit,  corn  from  T.  P  afterwards  arranges  with  A  to 
take  the  corn,  and  T,  learning  of  the  arrangement  and 
of  the  fact  that  P  has  actually  obtained  the  corn,  sues  P. 
In  this  case  T  has  no  contract  with  P  and  seeks  to  hold 
P  on  the  theory  of  ratification.  But  T  extended  the 
credit  to  A.  There  was  no  agency  or  appearance  of 
agency  and  P's  liability  is  to  A,  not  to  T.21 

(In  the  above  example  if  A  had  really  been  P's  agent, 
although  concealing  the  fact,  P  could  be  held  on  the 
theory  that  although  the  agency  was  concealed,  still  P 
was  in  fact  the  real  party  in  interest,  and  as  he  takes 

21.     Keighly  v.  Durand,  L.  R.  1900  A.  C.  240. 


American  Commercial  Law.  37 

the  benefits  ought  to  be  held  to  the  burdens.     See  sub- 
ject Undisclosed  Agency,  post.) 

(2)  Act  ratified  must  be  one  that  could  have  been  author- 
ized. 

What  one  cannot  authorize  in  the  first  instance,  he 
cannot  ratify.     Thus,  illegal  agencies  cannot  be  ratified. 

In  the  same  way  one  cannot  become  liable  upon  a 
tort  merely  by  assenting  to  it  afterwards,  even  though 
it  may  have  been  done  in  his  behalf  by  one  who  called 
himself,  but  was  not,  agent.22  Nevertheless,  if  a  lawful 
act  is  done  by  one  as  agent,  and  incidentally  thereto  he 
commits  a  tort,  the  principal  will  be  liable  for  the  tort 
if  he  adopts  the  act,  for  the  act  must  be  adopted  as  an 
entirety,  with  its  shortcomings  as  well  as  with  its 
advantages. 

Example  6.  A,  without  authority,  sells  and  delivers 
coal  to  B,  ostensibly  as  P's  agent.  In  unloading  the 
coal  he  breaks  a  window.  P  ratifies  the  sale  and  de- 
livery by  accepting  the  price.     He  is  liable  for  the  tort.23 

(3)  Ratifier  must  be  in  existence  when  contract  is  made. 

One  cannot  be  an  agent  of  another  who  doesn't  exist. 
Therefore  it  is  said  that  it  is  essential  to  ratification 
that  the  principal  be  in  existence.  But  in  cases  of  cor- 
porations yet  to  be  formed,  it  is  said  they  may  become 
liable  upon  the  contracts  of  promoters  and  incorporators 
by  adoption. 

(4)  Ratifier  must  be  fully  informed. 

That  one  may  be  held  by  ratification  he  must  be 
fully  informed  of  all  the  material  facts.24 

22.  Dempsey  v.  Chambers,  154  Mass.  330. 

23.  Dempsey  v.  Chambers,  154  Mass.  330. 

24.  Combs  v.  Scott,  94  Mass.  493. 


38  Law  of  Agency. 

Information,  however,  may  be  special  or  general. 
One  cannot  remain  in  wilful  ignorance  of  details  in 
order  not  to  be  bound  the  while  he  knows  there  are 
facts  of  which  he  chooses  to  remain  in  ignorance,  re- 
ceiving the  benefits. 

Example  7 .  A  makes  a  lease  in  P's  name.  P  enters 
upon  and  enjoys  the  premises.  Being  sued  for  the  rent 
he  claims  that  A  had  no  authority  and  that  during  the 
time  it  is  sought  to  hold  him  he  did  not  know  the 
terras  of  the  lease.     He  is  bound  .^5 

(5)  Ratification  must  be  of  entire  act. 

The  principal  cannot  divide  the  act  into  parts,  ratify- 
ing those  that  suit  him  and  disclaiming  the  balance.^* 
This  is  very  apparent  if  we  remember  that  ratification 
merely  supplies  prior  lack  of  authority  and  therefore 
must  operate  as  prior  authority  would  have  done  had 
it  existed. 

It  follows  that  if  he  ratifies  part  he  ratifies  all.  Thus, 
if  the  act  involves  a  tort,  we  have  seen  that  the  ratifica- 
tion of  the  act  is  a  ratification  of  the  tort. 

(6)  Ratification  must  be  before  withdrawal  by  the  other 
party. 

The  principal  not  being  bound  because  the  agent 
lacked  authority  unless  he  chooses  to  ratify,  it  follows 
that  the  third  party  may  also  disclaim  if  he  does  so 
before  the  authority  is  ratified .2^  Otherwise  we  would 
have  the  anomaly  of  the  third  person  being  bound,  and 
the  alleged  principal  not  bound. 

25.  Ermantraut  v.  Robinson,  52  Minn.  333. 

26.  See  Ratification  by  Receiving  Benefits. 

27.  There  is  difference  of  opinion  on  this  subject,  but  the 
weight  of  authority  is  as  stated.  See  Mechem,  Agency,  2nd 
Ed.  Sec.  522. 


American  Commercial  Law.  39 

(7)  Ratification  must  be  in  the  form  required  of  previous 
authorization. 

If  the  authority  lacks  sufficient  form,  the  lack  is  there 
whether  the  authority  be  conferred  yesterday  or  to- 
morrow. Thus,  if  the  execution  of  a  sealed  instrument 
by  an  agent  requires  a  sealed  authority,  a  ratification 
must  be  under  seal .28  The  statute  of  frauds  in  some 
states  requires  the  authority  to  sell  real  estate  to  be  in 
writing.  Held,  that  whether  the  authority  is  conferred 
antecedently  or  by  ratification,  it  must  be  in  writing.29 

But  it  is  also  held,  that  where  a  mere  formality  is 
required  (as  in  the  two  illustrations  given)  a  principal 
might  by  conduct  in  receiving  benefits  be  estopped  to 
insist  upon  the  formality .^^ 

B.    What  Constitutes  Ratifications. 
Sec.  22.    EXPRESS  RATIFICATION.    Express  ratifica- 
tion consists  in  supplying  the  lack  of  authority  by  writing  or 
orally. 

Ratification  may  be  expressly  made.  The  principal 
might  ratify  by  express  statement  in  order  to  supply 
the  original  defect,  or  because  he  did  not  care  to  insist 
on  the  lack  of  authority. 

Ratification,  however,  is  in  most  cases  a  fact  to  be 
discerned  from  the  circumstances.  We  will  now  inquire 
what  conduct  constitutes  ratification. 

Sec.  23.  SILENCE  AS  RATIFICATION.  Silence  may 
be  ratification.  The  general  rule  is  that  a  principal  must  dis- 
claim within  a  reasonable  time  after  fully  informed  of  all  the 
facts. 

That  silence  or  rerusal  to  disclaim,  may  constitute 
ratification  is  conceded  by  all  of  the  authorities.     Some 

28.  Reese  v.  Medlock,  27  Tex.  120. 

29.  Hawkins  v.  McGroarty,  110  Mo.  546. 

30.  Reese  v.  Medlock,  supra. 


40  Law  of  Agency. 

draw  a  distinction  between  cases  in  which  an  agent 
merely  exceeds  his  authority  and  those  in  which  the 
supposed  agent  has  no  authority,  holding  that  in  the 
former  case,  he  must  affirmatively  disclaim,  while  in  the 
latter  silence  in  itself  will  not  in  law  constitute  ratifica- 
tion, although  it  may  be  evidence  thereof.^i  But  other 
cases  disparage  this  distinction  as  being  without  merit.^^ 
Practically,  the  only  safe  rule  for  a  principal  to  follow 
who  would  not  be  bound  on  something  volunteered  in 
his  behalf  is  to  disclaim  at  the  earliest  opportunity. 

Sec.  24.  RATIFICATION  BY  RECEIVING  BENEFITS. 
One  who  with  knowledge  of  the  facts  accepts  the  benefits  of 
an  act  done  in  his  behalf  will  be  held  to  have  ratified  the  act  as 
a  whole.  He  cannot  enjoy  the  benefits  without  assuming  the 
burdens. 

The  most  common  instance  of  ratification  is  that 
afforded  where  the  principal  receives  and  enjoys  the 
benefit  of  the  act.  If  the  acceptance  is  accidental  or  un- 
der a  mistake  of  fact  the  principal  will  not  be  bound,  but 
he  cannot  knowingly  accept  the  benefits  of  the  contract 
and  not  be  bound  upon  the  whole  contract  as  made. 

Example  8.  A  in  P's  behalf  makes  a  lease  of  P's 
property  to  T.  P  receives  the  rent  a  considerable 
period  of  time,  but  then  deciding  that  the  lease  is  not 
good  enough,  seeks  to  set  it  aside  on  the  ground  A  had 
insufficient  authority.  Held^  that  P  had  ratified  the  act 
by  receipt  of  the  rents.^^ 

If  the  principal  is  in  ignorance  of  the  facts,  as  we  have 
heretofore  considered,  there  is  no  ratification. 

The  question  arises  whether  a  retention  of  the  benefits 

31.  Ward  v.  Williams,  26  111.  447. 

32.  Union  Gold  Mining  Co.  v.  Rocky  Mt.  Nat.  Bk.,  2  Col. 
248. 

33.  Hyatt  v.  Clark,  118  N.  Y.  569. 


American  Commercial  Law.  41 

after  he  has  discovered  facts  which  he  did  not  know  at 
the  time  of  the  receipt  of  the  benefits  will  constitute 
ratification.  And  it  is  held  that  such  retention  is  rati- 
fication if  the  principal  can  return  them  without  injury, 
but  if  he  cannot,  such  retention  will  not  be  a  ratification. 
Example  9.  P  authorized  A  to  obtain  from  T  a 
release  of  T's  interest  in  certain  land.  The  agent  ob- 
tained the  release,  but  agreed,  without  authority,  that 
P  should  assume  a  debt  of  T.  P  afterwards  sold  the 
land,  not  knowing  of  the  assumption  of  the  debt.  Held, 
that  there  was  not  ratification  in  the  failure  to  disaffirm.^ 

Sec.  25.  RATIFICATION  BY  BRINGING  SUIT.  Rati- 
fication of  an  agent's  act  may  consist  in  suit  brought  by  the 
principal  upon  the  contract. 

Suit  may  constitute  ratification  if  the  suit  is  based 
upon  the  contract  made  by  the  agent. 

Example  10.  P  authorizes  A  to  sell  goods  as  a  travel- 
ing salesman,  and  furnishes  him  a  sample.  A  sells  the 
sample  to  T,  and  receives  the  money  with  which  he 
absconds.  P  sues  T  for  the  price  of  the  sample.  Held, 
that  while  A  had  no  authority  to  sell  the  sample,  P's 
suit  upon  the  contract  made  by  A  was  a  ratification  of 
A's  authority  to  sell;  if  A  had  authority  to  sell  and 
deliver  possession,  he  had  authority  to  receive  the  price. 
Hence  P  cannot  recover.  What  P  should  have  done 
was  to  repudiate  A's  authority  to  sell  and  demand  the 
sample,  or  sue  in  tort  for  its  value.  In  that  case  T's 
payment  to  P  would  be  no  defense.^^ 

Sec.  26.  RATIFICATION  CURES  ORIGINAL  DE- 
FECT.  Ratification  relates  back  and  takes  the  place  of  origi- 
nal authority.     Having  established  the  fact  of  ratification  the 

34.  Martin  v.  Hickman,  64  Ark.  217. 

35.  Bailey  v.  Pardridge  et  al.,  134  111.  188;  27  N,.  E.  89. 


42  Law  of  Agency. 

same  results  follow  that  exist  where  prior  authority  is  con- 
ferred. 

Ratification  relates  back  and  supplies  what  was  lack- 
ing. All  the  results  then  follow  that  would  have  followed 
had  there  been  original  authority;  the  principal  becomes 
bound  upon  the  contract;  the  agent  is  not  bound;  the 
agent  has  the  right  against  his  principal  and  the  principal 
against  the  agent  that  would  have  otherwise  existed. 

We  have  already  noticed  how  a  ratification  of  a  part 
of  an  act  is  a  ratification  of  the  entire  act. 

Sec.  27.  RATIFICATION  IRREVOCABLE.  Ratification 
once  made  cannot  be  withdrawn. 

One  cannot  with  knowledge  of  the  facts  ratify  and 
then  change  his  mind.  Upon  his  ratification  a  contract 
arises  and  exists  between  the  parties,  and  he  cannot 
afterwards  undo  that  contract.  He  is  bound  upon  it. 
One  can  no  more  revoke  a  contract  effective  through 
ratification  than  he  can  revoke  any  other  contract  after 
it  is  made. 


PART  II. 

THE  DUTIES  AND  LIABILITIES  ARISING  OUT  OF 
AGENCY. 


CHAPTER  5. 

THE   DUTIES  AND   LIABILITIES   OF   THE 
PRINCIPAL  TO  THE  AGENT. 

Sec.  28.  AGENT'S  RIGHT  TO  COMPENSATION.  The 
agent's  right  to  compensation  depends  on  his  contract,  and 
may  be  either  conditional  upon  results  or  absolute.  His  right 
may  be  implied  from  the  facts. 

An  agent  may  demand  his  compensation  when  he  has 
earned  it  according  to  his  contract.  He  may  work  con- 
tingently, as  for  a  commission,  or  his  right  may  be 
absolute. 

In  the  law  of  contract  we  learn  that  a  contract  will  be 
implied  from  circumstances  in  which  (there  being  noth'ng 
express  to  the  contrary)  the  only  reasonable  explanation 
is  a  contractual  basis,  as  where  a  stranger  works  for 
another;  but  if  another  explanation  is  more  reasonable, 
as  where  a  son  works  for  his  father,  there  is  no  contract, 
unless  an  agreement  be  shown.^^ 

36.  Hodge  v.  Hodge,  91  Pac.  (Wash.)  764,  11  L.  R.  A. 
(N.  S.)  873. 

43 


44  Law  of  Agency. 

Sec.  29.  WHEN  COMPENSATION  CONSIDERED 
EARNED.  An  agent  earns  his  compensation  when  he  ac- 
complishes what  he  undertook. 

When  the  agent  has  earned  his  compensation  depends 
on  his  contract  and  his  performance  thereof.  This 
question  arises  frequently  in  real  estate  cases,  which  may 
be  classified  as  follows: 

(a)  Cases  in  which  the  real  estate  broker  was  author- 
ized to  find  a  purchaser  upon  certain  terms,  and  finds 
one  upon  those  terms  who  is  ready, willing  and  able  to  buy. 
There  he  has  accomplished  all  he  set  out  to  do,  and  the 
seller  cannot  deny  his  right  by  refusing  to  consummate 
the  sale,  or  by  dismissing  the  broker  and  consummating 
it  himself,  or  through  another  broker.^^ 

(b)  Cases  in  which  the  broker  is  requested  merely  to 
find  a  purchaser,  terms  not  being  stated.  Frequently 
an  owner  will  merely  list  his  property  for  sale,  expecting 
to  negotiate  later.  In  such  a  case  the  broker  is  entitled 
to  no  fee  until  a  contract  is  made,  or  a  sale  is  made.^^ 

If  a  sale  is  made  in  such  a  case,  or  even  a  contract 
which  the  buyer  or  seller  will  not  carry  out,  the  broker  is 
entitled  to  his  commission. 

Sec.  30.  AGENT'S  RIGHT  TO  DAMAGES  WHERE 
PRINCIPAL  WRONGFULLY  REVOKES.  If  the  principal 
wrongfully  revokes  the  agency,  the  agent  may,  as  in  the  case 
of  any  breach  of  contract,  have  his  action  to  recover  the  dam- 
ages he  may  have  sustained. 

If  a  contract  is  broken  there  arises  at  once  an  action 
for  damages.  If  an  agent  is  wrongfully  discharged,  he 
may  not  as  yet  have  earned  his  compensation,  yet  he 

37.  Fox  v.  Ryan,  240  111.  391. 

38.  Fox  v.  Ryan,  supra. 


American  Commercial  Law.  45 

may  have  what  his  damages  are  found  to  be.  There  is 
of  course,  a  right  to  discharge,  if  the  agent  has  himself 
been  guilty  of  a  breach  of  the  contract,  and  in  that  case 
the  agent  could  not  claim  damages  or  compensation. 
It  must  also  be  borne  in  mind  that  there  are  many 
agencies  which  are  for  no  stated  period,  but  merely  at 
will,  and  in  such  a  case  a  revocation  of  the  agent's 
authority  might  be  made  at  any  time,  and  no  right  of 
damages  would  arise;  yet,  as  we  noted  in  the  section 
above,  if  the  agent  had  done,  or  substantially  done, 
what  he  set  out  to  do  before  the  revocation  he  would 
have  earned  his  compensation.  So  there  may  be  a 
revocable  agency,  in  which  one  is  to  receive  a  reasonable 
or  an  expressly  stated,  compensation  for  services  actu- 
ally performed. 

Assuming,  however,  that  the  authority  is  wrongfully 
revoked,  and  that  the  compensation  agreed  upon  has 
not  been  earned  before  the  revocation,  the  agent  is  left 
to  his  action  for  damages.  This  is  quite  a  different 
matter  from  his  right  when  he  has  earned  his  compensa- 
tion. For  instance,  if  I  employ  a  man  for  a  year,  he 
may  sue  me  for  the  year's  salary  if  he  works  for  the  year, 
but  if  I  discharge  him  on  the  first  day  of  the  year,  then 
he  has  earned  no  salary,  yet  he  may  have  his  damages, 
and  this  might  be  small  or  large,  or  none  at  all,  according 
to  the  actual  circumstances. 

It  is  said  that  an  agent  wrongfully  discharged  has 
three  remedies  he  may  choose  among: 

(1)  He  may  sue  for  the  value  of  the  services  already 
rendered ; 

(2)  He  may  sue  at  any  time  after  breach  and  have 
his  damages  which  he  has  sustained  up  to  that  time; 

(3)  He  may  wait  until  the  term  has  elapsed  and  sue 
for  all  the  damages  actually  sustained  by  him. 

Then  suppose  P  has  employed  A  for  one  year.     A 


46  Law  of  Agency. 

has  worked  one  month  when  he  is  wrongfully  discharged 
by  P.  He  may  thereupon  sue  for  the  reasonable  value 
of  one  month's  services;  or  any  time  after  the  month 
and  before  the  year  has  elapsed  he  may  sue  for  his 
damages  sustained  by  him  up  to  the  time  of  trial;  or  he 
may  wait  until  the  year  has  entirely  elapsed  and  have 
all  the  damages  which  the  breach  caused  him.  He  could 
not  sue  for  his  earnings  (salary  or  wages)  alleged  to 
accrue  after  he  was  discharged.  Thus  at  the  end  of  the 
second  month,  he  could  not  sue  for  the  second  month's 
salary,  although  it  would  under  the  contract  then  have 
fallen  due,  for  he  has  not  been  in  P's  service.  But  he 
can  only  sue  for  his  damages,  which  might  be  much 
less  than  his  salary  or  wages  because  he  might  have 
employment  elsewhere.  And  having  once  sued  for  his 
damages  he  could  not  sue  again.  Thus  if  he  sues  at  the 
end  of  the  second  month,  he  could  not  sue  at  the  end  of  the 
third  for  damages  accruing  during  the  third.  For  there 
is  but  one  breach  of  the  contract  and  he  can  have  only 
one  suit  for  that  breach .^9 

In  a  suit  for  damages,  such  damages  are  allowed  as 
have  accrued  up  to  the  time  of  the  trial.  It  is  the 
agent's  duty  upon  discharge  to  use  reasonable  efforts  to 
secure  other  employment  along  the  same  lines,  and  if  he 
refuses  to  accept  employment  offered  him  or  which  he 
might  well  have  secured,  his  damages  are  reduced  by 
what  he  thus  might  have  earned  during  the  period. 

What  has  been  said  has  no  reference  to  an  agent's 
right  to  sue  for  his  salary  as  it  falls  due  when  he  is  not 
discharged.  Thus  he  might  bring  suit  at  the  end  of 
every  month  for  his  month's  salary  when  he  continued 
in  the  service. 

Sec.  31.  AGENT'S  RIGHT  TO  COMPENSATION 
WHERE  HE  HIMSELF  IS  GUILTY   OF  BREACH  OF 

39.     Doherty  v.  Shipper  &  Block,  250  111.  128. 


American  Commercial  Law.  47 

CONTRACT.  If  a  contract  of  agency  is  separable  into  inde- 
pendent parts,  the  agent  may  recover  for  the  performance  of 
any  part,  but  his  breach  of  any  part  of  an  entire  and  indivisible 
contract  bars  him  from  any  recovery  whatever,  except  that  in 
some  states,  he  is  allowed  to  recover  a  reasonable  compensa- 
tion for  beneficial  services  actually  rendered  as  on  a  quasi 
contract. 

If  a  contract  is  really  many  contracts  in  one,  a  breach 
of  one  of  these  is  no  breach  of  the  others.  It  has  been 
held  that  if  one  is  employed  by  the  month,  with  salary 
payable  at  the  end  of  the  month,  for  an  indefinite  period, 
he  may  recover  any  month's  salary  notwithstanding  his 
subsequent  breach .^^  but  in  that  case  the  principal  could 
set  off  his  damages,  if  any,  caused  by  the  subsequent 
breach.  On  the  other  hand,  if  an  agent  is  employed  for 
a  year,  with  salary  payable  monthly,  this  is  usually  held 
an  entire  contract  and  if  the  agent  breaks  the  contract 
before  the  expiration  of  the  year  he  will  be  held  to  have 
broken  all  parts  of  the  contract  and  have  no  right  to 
recover. 

Some  decisions"*!  have  allowed  an  agent  in  the  case 
of  such  a  breach  to  recover  as  on  an  implied  contract  for 
the  actual  worth  of  the  services  rendered  to  the  principal 
or  master.  This  seems  the  more  just  rule,  though  in 
strict  theory  the  rule  that  one  who  breaks  a  contract 
shall  have  no  right  thereon  is  more  logical,  and  that  is 
the  rule  in  many  states.^2 

Sec.  32.  AGENT'S  RIGHT  OF  COMPENSATION 
WHEN  HE  ABANDONS  SERVICE  WITHOUT  HIS 
OWN  FAULT.     Where  the  agent  through  sickness  or  other 

40.  Robertson  v.  Jenner,  15  L.  T.  (N.  S.)  514. 

41.  Britton  v.  Turner,  6  N.  H.  481  Mechem,  Agency,  2nd 
Ed.  Sec.  1578. 

42.  Stark  v.  Parker,  2  Pick.  (Mass.)  267. 


48  Law  of  Agency. 

cause,  not  from  his  own  fault,  quits  the  service,  he  may  have 
reasonable  compensation. 

If  an  agent  or  servant  has  under  a  contract  of  employ- 
ment performed  a  part  of  the  services,  and  then  is  com- 
pelled to  abandon  the  employment  through  sickness,  or 
through  any  other  cause  that  operates  to  prevent  him 
from  continuing,  he  may  sue  to  have  his  reasonable 
compensation  for  the  services  actually  performed .^^ 

43.    Fenton  v.  Clark,  11  Vt.  557. 


CHAPTER  6. 

THE  DUTIES  AND  LIABILITIES  OF  THE  AGENT 
TO    THE    PRINCIPAL. 

A.    The  Agent's  Obligation  of  Good  Faith. 

Sec.  33.  DUTY  OF  THE  AGENT  TO  USE  GOOD 
FAITH.  General  nile.  The  agent  must  display  and  exercise 
the  utmost  good  faith  toward  his  principal. 

One  employs  another  as  agent  out  of  personal  regards. 
The  relationship  is  a  highly  personal  one.  The  prin- 
cipal and  agent  are,  it  is  true,  at  arm's  length  in  dealing 
with  each  other  concerning  the  terms  of  the  agency,  but 
once  the  relationship  has  been  entered  into,  the  agent 
then  becomes  the  representative  of  the  principal,  the 
man  who  stands  in  his  stead,  who,  so  to  speak,  takes 
upon  himself  the  identity  of  the  principal,  who  is  the 
principal  in  respect  to  that  act.  It  follows  therefore 
that  the  agent  must  establish  the  principal's  interests 
as  his  own,  and  that  he  must  not  place  himself  in  any 
position  which  will  tempt  him  from  acting  in  the  very 
way  that  the  principal  would  have  acted  were  the 
principal  actually  present  as  he  is  by  a  fiction  presumed 
to  be  present.  It  is  therefore  one  of  the  most  funda- 
mental and  frequently  reiterated  rules  in  the  law  of 
agency  that  a  principal  is  entitled  to  the  highest  good 
faith  and  utmost  zeal  of  his  agent,  and  that  the  agent 
will  not  only  be  prevented  from  taking  secret  advantages, 
but  will  not  be  allowed  to  even  place  himself  in  the  way 
of  temptation,  though  in  the  particular  case  no  harm 
Bays — 4  49 


50  Law  of  Agency. 

thereby   resulted    to   the   principal.     In    the   following 
sections  we  will  note  some  applications  of  this  rule. 

Sec.  34.  AGENT  CANNOT  SECRETLY  REPRESENT 
BOTH  PARTIES.  An  agent  cannot  without  consent  of  both 
parties  be  the  agent  of  both  of  them  and  receive  double  com- 
pensation. In  such  a  case  he  loses  his  right  to  all  compensa- 
tion, and  if  either  party  is  privy  to  his  double  dealing,  the  other 
party  may  avoid  the  agreement. 

An  agent  of  one  person  cannot  be  the  agent  of  the 
other  with  whom  he  is  sent  to  deal.  To  permit  this  would 
lead  him  into  temptation  to  betray  one  of  his  principals.'^ 
If  both  parties  know  of  the  double  agency  and  consent 
thereto,  there  then  can  be  no  objection,  but  otherwise  the 
agent  loses  all  right  of  compensation  by  either  party, 
and  if  either  party  knows  of  the  double  agency  and 
knows  that  the  other  party  does  not  know  of  it,  the 
contract  is  voidable  at  the  instance  of  the  innocent 
party.  45 

This  rule  is  based  on  the  fact  that  a  principal  is 
entitled  to  the  utmost  fidelity  of  his  agent,  and  therefore 
is  entitled  to  have  the  agent  keep  himself  from  the 
temptation  to  betray  his  interests.  It  is  entirely  irri- 
material  whether  or  not  the  agent  did  betray  his  trust, 
or  did  anything  unfair.  Indeed  he  may  have  acted  in 
all  good   faith   and  without  any  disadvantage   to   his 

44.  Gann  v.  Zettler,  60  S.  E.  Reporter  (Georgia)  283,  in 
which  the  court  said:  "It  is  recorded  of  him  'who  spake  as 
never  man  spake,'  that,  'seeing  the  multitudes  he  went  up  into 
a  mountain,  and  when  he  was  set,  his  disciples  came  unto  him; 
and  he  opened  his  mouth  and  taught  them,  saying:  *  *  * 
'No  man  can  serve  two  masters,  for  either  he  will  hate  one 
and  love  the  other,  or  else  he  will  hold  to  the  one  and  despise 
the  other.'    So,  also,  is  our  law." 

45.  Rice  v.  Wood,  113  Mass.  133. 


American  Commercial  Law.  51 

principal.  This  is  of  no  moment.^^  The  only  safe  rule 
to  apply  is  the  rule  that  the  agent  cannot  place  himself 
in  the  way  of  temptation.  If  he  does  so,  further  inquiry 
need  not  be  made;  the  rule  will  simply  be  applied  that 
what  he  has  done  shall  redound  to  the  benefit  of  his 
master,  and  he  loses  his  right  to  compensation,  or,  if 
that  has  been  paid,  it  can  be  recovered. 

Sec.  35.  AGENT  CANNOT  BUY  FROM  OR  SELL  TO 
SELF.  An  agent  employed  to  buy  or  sell  cannot  secretly 
buy  from  or  sell  to  himself. 

If  one  sells  his  own  property  it  is  human  nature  that 
he  should  desire  to  sell  at  the  highest  price  he  can  get, 
and  if  he  buys  property,  he  would  buy  it  as  cheaply  as 
possible.  If  I  employ  an  agent  to  sell  property  belong- 
ing to  me,  I  employ  him  to  use  his  efforts  in  my  behalf 
to  get  the  highest  price  he  can,  and  if  I  employ  him  to 
buy  for  me,  I  do  so  under  the  implied  understanding 
that  he  will  purchase  on  the  most  favorable  terms  to  me 
that  he  can  get.  Clearly,  then,  if  he  buys  from  or  sells 
to  himself  he  is  opposing  his  interests  to  mine.  If  I 
know  he  is  doing  this,  then  I  am  on  my  guard  and  can 
protect  myself,  but  otherwise  he  betrays  or  is  tempted 
to  betray  my  trust  in  him.  Therefore,  buying  from  or 
selling  to  himself  is  forbidden,  and  the  principal  may 
upon  discovering  the  facts  have  the  transaction  re- 
scinded. And  what  may  not  be  done  directly  may  not 
be  done  indirectly,  that  is,  the  agent  acquires  no  further 
rights  by  acting  through  another  and  in  that  other's 
name. 

Example  11.  A  appointed  B  to  sell  his  real  estate. 
B  reported  he  had  sold  to  F.  Afterwards  B  by  assign- 
ment succeeded  to  F's  title,  and  A  discovered  that  F 

46.     People  v.  Township  Board,  11  Mich.  222. 


52  Law  of  Agency. 

was  acting  secretly  at  the  time  of  the  sale  as  a  colorable 
purchaser  merely  and  that  B  was  the  real  purchaser. 
A  sued  to  set  aside  the  sale,  and  the  court  set  it  aside  as 
having  been  made  by  the  agent  in  breach  of  his  trust.^'^ 

Sec.  36.  AN  AGENT  CANNOT  TAKE  SECRET  PROF- 
ITS AND  BENEFITS.  An  agent  cannot  use  his  agency  to 
obtain  secret  profits  and  benefits. 

Upon  the  same  principles,  an  agent  will  not  be  per- 
mitted to  use  his  agency  for  the  purpose  of  making 
secret  profits  and  taking  secret  benefits,  and  such  profits 
and  benefits  will  accrue  to  the  principal.  Thus  if  he 
uses  the  principal's  money  for  purposes  of  specula- 
tion, and  thereby  makes  a  profit,  the  principal  will  be 
entitled  thereto,  or  if  he  purchases  or  acquires  for  him- 
self property  which  the  principal  has  an  interest  in 
acquiring,  it  will  be  considered  that  he  acquired  it  for 
the  benefit  of  the  principal,  if  the  principal  desires  to 
take  it. 

Example  12.  An  agent  of  a  lessee  of  a  theatre,  acting 
upon  the  knowledge  and  in  the  advantage  secured  by 
his  agency,  secured  to  himself  a  renewal  of  his  principal's 
lease,  and  it  was  held  that  it  would  be  considered  that 
the  agent  acquired  it  for  the  benefit  of  his  principal .^^ 

So  profits  made  in  the  scope  of  agency  will  be  con- 
sidered as  made  for  the  benefit  of  the  principal.  If  an 
agent  is  employed  to  sell  for  one  price  and  succeeds  in 
selling  for  a  higher  one,  the  excess  belongs  to  the  prin- 
cipal. 

B.    Duty  to  obey  instructions,  use  care  and  skill,  etc. 
Sec.  37.     DUTY    OF    AGENT    TO    OBEY    INSTRUC- 
TIONS.    An  agent  must  obey  instructions  and  is  personally 

47.  Blank  v.  Aronson,  187  Fed.  241. 

48.  Davis  v.  Hamlin,  108  111.  39. 


American  Commercial  Law.  53 

responsible  for  losses  resulting  from  disobedience  and  may  be 
discharged  for  disobedience. 

While  it  is  of  course  true  that  a  principal  by  giving 
instructions  to  his  agent  cannot  thereby  enlarge  the 
agent's  duties  beyond  those  he  has  expressly  or  impliedly 
promised  to  give,  the  agent  must  not  disobey  reasonable 
and  material  instructions  given  by  the  principal  as  to 
modus  operandi. 

Example  13.  An  agent  is  instructed  to  ship  by  one 
route.  He  ships  by  another.  Loss  ensues  by  "Act  of 
God."    The  agent  must  answer. ^^ 

It  is  true  that  in  emergencies  where  the  agent  cannot 
communicate  with  the  principal  for  advice,  he  may  not 
only  disobey  instructions,  but  is  under  a  duty  to  do  so, 
where  the  emergency  requires,  as  where  a  principal  be- 
lieving a  certain  bank  to  be  sound  has  directed  deposits 
to  be  made  therein,  and  the  agent  before  making  a 
deposit  discovers  it  to  be  on  the  eve  of  failure.  Here  he 
must  know  that  the  principal  is  acting  under  a  misap- 
prehension.^ 

Sec.  38.  DUTY  OF  AGENT  TO  USE  CARE  AND 
SKILL.  If  an  agent  is  negligent  in  the  pursuit  of  his  duties, 
he  will  be  responsible  for  loss  if  loss  occur.  What  constitutes 
negligence  depends  on  the  circumstances. 

An  agent  must  act  with  reasonable  diligence  and  skill. 
If  he  is  negligent  in  doing  the  work  intrusted  to  him  he 
is  responsible  for  the  losses  thereby  occasioned.  Thus,  if 
an  attorney  at  law  undertakes  to  collect  a  claim,  and 
does  not  act  with  reasonable  promptness  and  loss  thereby 
results,  he  may  be  held  responsible  for  the  consequences. 

49.  Johnson  v.  N.  Y.  Cent.  Transp.  Co.,  33  N.  Y.  610. 

50.  Mechem,  Agency,  2nd  Ed.  Sec.  1262. 


54  Law  of  Agency. 

What  constitutes  reasonable  diligence  depends  upon 
the  circumstances.  One  who  does  not  profess  to  be  an 
expert  or  skilled  at  all  in  the  line  in  which  he  is  employed 
cannot  be  held  to  the  high  standard  of  skill  and  care 
that  is  to  be  expected  from  one  who  makes  skill  in  such 
work  a  profession.  If  I  employ  one  whom  I  know  to 
be  a  common  laborer,  to  do,  say,  plumbing  work,  in  my 
residence,  I  cannot  hold  him  responsible  where  I  might 
hold  a  professional  plumber. 

50,  agents  employed  to  sell  on  credit  must  use  reason- 
able care  to  select  solvent  buyers;  and  wherever  discre- 
tion is  required  the  agent  must  act  with  prudence  and 
caution. 

If  an  agent  acts  gratuitously,  he  may  or  may  not  be 
required  to  use  the  skill  which  would  be  required  in  a 
paid  servant,  according  to  circumstances.  If  one  pro- 
fesses to  have  skill  in  some  work,  and  bestows  that 
work  without  any  reward,  the  lack  of  reward  is  of  no 
moment.  Thus  a  physician  giving  his  services  free  in  a 
matter  in  which  he  professed  to  have  particular  skill, 
must  not  be  any  more  negligent  than  if  he  expects  to 
receive  a  reward.  But  if  one  does  an  act  merely  as  a 
favor,  professing  no  peculiar  skill  therein,  he  will  be 
held  only  to  the  exercise  of  good  faith. 

The  following  example  is  from  a  case  in  which  the 
duty  of  care  and  prudence  was  applied. 

Example  14.  P  employs  A  to  invest  money  for  him. 
P  is  an  attorney  at  law.  He  puts  it  in  an  unsafe  second 
mortgage  whereby  A  sustains  loss.     A  is  responsible.^^ 

Sec.  39.  AGENT'S  DUTY  OF  PERSONAL  PERFORM- 
ANCE.  An  agent  cannot  delegate  to  others  the  duties  imposed 
upon  him,  except  those  of  a  purely  ministerial  chai-acter  where 

51.  Whitney  v.  Martin,  88  N.  Y.  535. 


American  Commercial  Law.  55 

by  reasonable  implication  such  ministerial  acts  are  not  expected 
of  him  personally. 

"Delegata  potestas  non  potest  delegari"  (A  power 
delegated  cannot  again  be  delegated.)  That  which  the 
agent  is  appointed  to  do  he  cannot  appoint  another  to 
do  for  him  unless  he  has  been  given  that  right  in  the 
appointment.  The  agent  has  been  selected  for  personal 
reasons  and  must  perform  the  work  himself.  This  does 
not  prevent  an  agent  from  employing  clerks  or  sub- 
agents  to  help  him  where  that  is  the  reasonable  inference 
from  his  appointment,  the  agent  remaining  liable  for 
their  defaults.  Ordinarily  any  ministerial  or  merely 
clerical  duty  can  be  performed  by  the  agent's  clerks  or 
subagents,52  but  their  defaults  are  the  defaults  of  the 
agent.  Purely  ministerial  acts,  even,  cannot  be  dele- 
gated if  the  purpose  of  appointing  the  agent  (or  servant) 
is  to  perform  them,  as  where  one  is  employed  to  do 
manual  labor. 

Sec.  40.  WHETHER  AGENT  IS  SELECTED  TO  PER- 
FORM OR  TO  OBTAIN  AGENT  TO  PERFORM.  If 
agent  is  selected  to  accomplish  a  certain  object,  he  cannot 
delegate  his  responsibility,  but  if  he  is  merely  selected  to  ob- 
tain another  agent  to  accomplish  such  object,  his  duty  is  per- 
formed when  he  has  used  reasonable  care  to  select  such  an. 
agent,  and  he  is  not  answerable  for  that  agent's  defaults. 

As  seen  in  the  last  section,  an  agent's  discretionary 
duties  are  not  delegable,  and  when  within  the  con- 
templation of  the  authority  he  has  clerks  or  subagents 
to  help  him,  he  is  responsible  for  their  acts,  as  such  acts 
are  his  acts.  But  the  object  for  which  he  is  employed 
may  be  to  obtain  an  agent  for  the  principal,  and  in  that 

52.     Eldredge  v.  Holway,  18  111.  445. 


56  Law  ov  Agency. 

case  obviously  his  use  is  fulfilled  when  he  has  obtained 
such  an  agent,  and  that  agent  is  then  the  agent  of  the 
principal.  But  the  fact  that  it  is  known  that  he  will 
employ  others  to  help  him  does  not  make  the  act  any 
less  his. 

Example  15.  P  employs  A,  a  collection  agency,  to 
collect  accounts,  in  the  collection  of  which  he  knows  that 
A  will  employ  lawyers  located  at  the  point  of  residence  of 
the  debtor.  A  is  liable  for  a  default  by  an  attorney 
employed  by  him.^^ 

Sec.  41.  SAME  SUBJECT  APPLIED  TO  COLLEC- 
TIONS BY  BANKS.  If  a  bank  receives  commercial  paper 
for  collection,  in  which  it  is  known  it  will  employ  correspon- 
dents some  authorities  hold  that  the  correspondent  bank  is  the 
agent  of  the  holder  of  the  paper,  and  some  that  it  is  a  subagent 
of  the  first  bank  for  whose  defaults  such  first  bank  is  liable. 

P  employs  A,  a  bank  in  Chicago,  to  collect  a  note 
payable  in  New  York  City.  P  knows  and  expects  that 
A  will  send-  the  note  to  a  New  York  correspondent.  If 
this  New  York  correspondent  is  negligent  in  presenting 
the  note  for  payment,  whereby  loss  ensues,  is  the  Chicago 
bank  liable,  or  must  the  principal  have  his  recourse 
against  the  New  York  bank,  and  if  that  fails,  be  without 
remedy?  It  is  simply  a  question  whether  the  New 
York  bank  is  to  be  regarded  as  an  agent  of  the  Chicago 
bank  or  an  agent  of  P  secured  for  P  by  the  Chicago 
bank.  The  courts  are  at  variance  on  this  question.  In 
Colorado,  Georgia,  Kansas,  Michigan,  Minnesota,  Mon- 
tana, New  Jersey,  New  York,  Ohio,  and  some  other 
states,  and  in  the  United  States  Supreme  Court,  the 
rule  prevails  that  the  correspondent  bank  is  the  agent  of 
the  bank  employing  it  and  that  the  latter  is  responsible 

53.    Weyerhauser  v,  Dunn,  100  N.  Y.  150. 


American  Commercial  Law.  57 

to  the  client  for  the  negligence  of  the  former.  In 
Alabama,  California,  Connecticut,  Florida,  Illinois, 
Indiana,  Iowa,  Louisiana,  Maryland,  Massachusetts, 
Mississippi,  Missouri,  Nebraska,  Pennsylvania,  and 
Tennessee,  the  rule  is  otherwise.  In  such  a  case  the 
owner  of  the  paper  must  look  to  the  correspondent 
bank,  provided  the  employing  bank  used  'due  care  in 
selecting  the  agent.  If  that  agent  becomes  insolvent, 
the  client  is  without  remedy  for  its  negligence  in  pre- 
senting the  paper.  This  is  the  rule  most  broadly 
adopted. 54 

There  may  be  a  special  agreement  in  any  event  that 
the  bank  shall  not  be  liable  for  the  negligence  of  the 
subagent. 

C.    Liability  of  Agent  to  Principal  for  Defaults  of  the 
Third  Person. 

Sec.  42,  GENERAL  RULE.  The  general  rule  is  that  an 
agent  has  no  responsibility  for  defaults  of  the  third  person 
upon  the  contract  executed  by  the  agent. 

An  agent  is  merely  an  intermediary.  He  forms  the 
contract  for  the  principal,  but  is  not  himself  a  party 
thereto.  His  office  is  to  represent  the  principal  in  the 
contractual  relationships,  and  that  done,  his  office  is 
fulfilled.  He  does  not  undertake  with  his  principal  that 
the  person  with  whom  he  contracts  for  his  principal  will 
perform  the  contract.  If  he  is  appointed  to  sell  goods 
for  John  Smith  to  William  Jones  on  credit,  he  is  not 
answerable  if  William  Jones  does  not  pay  the  debt. 
This  principle  is,  of  course,  ordinarily  understood  and 
acted  upon  in  the  commercial  world,  and  hardly  needs 
comment.     Its  statement,  however,  serves  as  an  intro- 

54.  First  National  Bank  v.  Sprague,  14  L.  R.  A.  498  (Nebr.), 
discussing  the  rule  pro  and  con  and  reviewing  the  authorities. 


58  Law  of  Agency. 

duction  to  the  situation  discussed  in  the  following 
section  in  which  the  agent  affirmatively  assumes  such 
a  liability. 

Sec.  43.  DEL  CREDERE  AGENCIES.  A  del  credere 
agent  is  one  who  undertakes  (usually  for  a  special  considera- 
tion) to  pay  the  principal  the  accounts  arising  out  of  the  agency 
if  the  customer  fails  to  do  so.  It  is  deemed  a  direct  obligation, 
and  the  agent  is  immediately  liable  upon  the  expiration  of  the 
period  of  credit,  and  is  not  an  obligation  covered  by  the  statute 
of  frauds. 

A  del  credere  agent  undertakes  that  he  will  be  respon- 
sible to  the  principal  for  the  price  of  goods  sold  by  him. 
This  is  an  unusual  undertaking  and  not  one  that  is 
incidental  to  the  relationship  and  therefore  must  be 
positively  entered  into,  though  inferrable  if  facts  war- 
rant.55 

The  agent  is  liable  upon  this  undertaking  at  the  end 
of  the  period  of  credit.  It  is  not  necessary  that  the 
principal  first  resort  to  the  debtor. ^^  It  has  also  been 
decided  that  the  obligation  of  the  agent  is  a  direct, 
primary  obligation,  and  not  "a  promise  to  answer  for 
the  debts  of  another"  within  the  meaning  of  the  statute 
of  frauds,  therefore  is  enforceable  although  there  is  only 
oral  evidence  to  prove  it." 

55.  Shaw  V.  Woodcock,  7  B.  &  C.  73. 

56.  Balderson  v.  National  Rubber  Co.,  18  R.  I.  388. 

57.  Wolf?  V.  Koppel,  2  Denio  (N.  Y.)  688. 


CHAPTER  7. 

THE  DUTIES  AND  LIABILITIES  IN  CONTRACT  OF 

A  DISCLOSED  PRINCIPAL  TO  THIRD  PERSONS 

(THE  AUTHORITY  OF  THE  AGENT). 

Sec.  44.  GENERAL  RULE.  A  principal  in  whose  name 
a  contract  is  made  pursuant  to  authority,  is  liable  to  the  third 
person. 

We  may  find  three  situations  in  which  a  principal  who 
is  disclosed  at  the  time  of  the  contract  and  in  whose 
name  the  contract  is  made  is  liable  thereon. 

1.  Where  the  principal  actually  authorized  the  agent 
to  make  the  contract. 

2.  Where  there  is  no  actual  authority,  yet  from  the 
situation  in  which  the  principal  places  the  agent,  the 
third  person  may  presume  there  is  authority.  The 
agent  is  then  said  to  have  apparent  authority. 

3.  Where  there  is  neither  actual  nor  apparent 
authority,  yet  the  act  is  done  in  the  name  of  the  prin- 
cipal and  the  principal  afterwards  ratifies  the  act.  This 
situation  we  have  already  considered. 

Sec.  45.  UNAUTHORIZED  ASSERTIONS  BY  AGENT 
OF  HIS  AUTHORITY.  A  principal  is  not  bound  by  the 
unauthorized  assertions  of  authority  made  by  the  agent. 

It  is  very  clear  that  no  one  can  hold  another  as  prin- 
cipal merely  because  a  certain  person  has  represented 
himself  to  be  an  agent.  If  that  were  the  case  no  man 
could  know  what  obligations  another  m.ight  fasten  upon 

59 


6o  '    Law  of  Agency. 

him.  Just  as  no  man's  property  can  be  taken  from  him 
by  forgery  or  theft,  so  no  contract  may  be  fastened 
upon  him  by  another's  unauthorized  representation  of 
him.  All  authority  to  act  as  agent  must  be  traceable 
back  to  some  word  spoken  or  some  act  done  by  the 
principal,  upon  which  the  third  person  is  entitled  to  rely 
as  a  representation  not  only  that  the  agent  is  an  agent, 
but  also  that  as  such  agent  he  has  authority  to  bind  the 
principal  upon  this  very  contract.  The  agent  may  in 
such  a  case  exceed  his  real  authority;  he  may  disobey 
secret  instructions,  he  may  do  things  that  the  principal 
never  contemplated  that  he  should  do,  and  the  principal 
may  be  held ;  yet  in  such  a  case  there  must  still  be  some- 
thing said  or  done  by  the  principal  upon  which  a  third 
person  may  reasonably  base  a  belief  that  the  agent  had 
the  power  in  question  "It  is  to  be  remembered  that 
persons  dealing  with  an  assumed  agent  are  bound  at 
their  peril  to  ascertain  not  only  the  fact  of  the  agency, 
but  the  extent  of  the  agent's  authority. "^^ 

Sec.  46.  EXPRESS,  IMPLIED  AND  APPARENT  AU- 
THORITY. Express  authority  is  that  set  forth  literally. 
Implied  authority  is  authority  actually  conferred  by  implica- 
tion. Apparent  authority  is  the  authority  which  the  agent 
seems  to  havtf  from  other  circumstances  whether  he  actually 
has  it  or  not  and  includes  implied  authority. 

Authority  of  an  agent  to  bind  his  principal,  may  be 
thus  arranged : 

1.  Actual  authority. 

(a)  Express. 

(b)  Implied. 

2.  Apparent  authority. 

58.  Merchant's  National  Bank  of  Peoria  v.  Nichols,  223 
III.  41. 


American  Commercial  Law.  6i 

The  law  of  the  agent's  apparent  authority  is  frequently 
treated  as  synonymous  with  his  implied  authority; 
but  there  is  a  distinction.  It  is  true  an  agent  has  appar- 
ent authority  to  do  a  certain  thing  because  he  has 
implied  authority  to  do  it,  but  in  that  sense  apparent 
authority  would  also  cover  express  authority.  But  the 
term  apparent  authority  would  seem  to  be  more  cor- 
rectly employed  to  denote  an  appearance  of  authority  as 
to  third  persons  independent  of  the  question  whether 
there  is  authority  as  between  the  parties  themselves. 

It  is  a  usual  rule  of  construction  applied  to  all  grants 
of  power  that  the  grant  carries  with  it  by  implication  all 
that  is  necessary,  convenient  and  reasonable  to  carry 
out  the  purpose  of  the  grant.  In  general  agencies,  this 
is  necessarily  quite  large.  In  special  agencies,  it  is 
narrow.  As  appointment  of  an  agent  to  operate  a 
general  store,  carries  with  it  by  implication  all  that  is 
necessary  and  usual  to  that  end,  although  not  enumer- 
ated. But  apparent  authority  may  exist  where  there  is 
neither  express  nor  implied  authority.  One  behind  a 
counter  apparently  as  a  clerk  might  be  there  in  fact  as  a 
detective  with  instructions  to  make  no  sales.  Yet  he 
would  have  apparent  authority  to  make  sales,  and  do 
whatever  one  in  that  position  usually  has  power  to  do. 

Secret  instructions  derogatory  to  the  seeming  authority 
are  not  binding  on  third  persons.  Thus  I  might  give  an 
agent  a  power  of  attorney  to  borrow  money  for  me  and 
instruct  him  not  to  use  it  until  he  heard  further  from  me, 
but  if  he  did  use  it  I  would  be  bound. 

Sec.  47.  IMPLIED  AND  APPARENT  AUTHORITY 
IN  GENERAL  AND  SPECIAL  AGENCIES.  In  a  general 
agency  there  is  necessarily  much  more  implied  and  therefore 
apparent  agency  than  in  a  special  agency. 

The  courts  have  very  frequently  referred  to  agencies 
as  being  general  or  special  for  the  purpose  of  determining 


62  Law  of  Agency. 

the  question  of  implied  or  apparent  authority.  The 
distinction  has  been  criticized  upon  the  ground  that  the 
real  question  is  merely  what  implications  can  properly  be 
made  from  the  facts  in  each  case,  but  as  a  matter  of  fact 
in  a  rough  way  the  distinction  carries  a  real  meaning. 
A  person  employed  to  manage  a  mill  would  be  called  a 
general  agent.  Necessarily  there  is  in  his  appointment 
much  left  to  be  implied,  while  an  agent  appointed  to 
collect  a  note  has  practically  no  authority  save  that 
which  has  been  expressly  conferred  upon  him.  But 
suppose  he  is  employed  to  collect  notes  generally.  Is 
he  a  special  agent  or  a  general  one?  His  authority  would 
be  confined  to  the  collection  of  notes.  He  could  no  more 
extend  time  of  payment  on  one  than  if  he  had  been 
appointed  to  collect  only  that  one.  After  all  the 
question  is — what  reasonably  may  we  infer  from  the 
appointment  conferred  upon  him,  and  the  use  of  the 
distinction  into  general  and  special  agencies  must  not 
confuse  us  on  this  point. 

Sec.  48.  CONSTRUCTION  OF  SPECIAL  APPOINT- 
MENTS. Special  powers  of  attorney  or  appointments  will  not 
be  extended  by  implication  to  include  any  act  not  necessary 
or  reasonable  to  carry  into  effect  the  purpose  of  the  grant. 

On  the  general  principle  that  a  person  need  not  give 
another  any  power  to  represent  him,  and  if  he  does  give 
him  power,  need  not  give  him  more  than  he  desires,  an 
appointment  of  an  agent  is  not  to  be  extended  beyond 
reasonable  implication.  Of  course  it  is  true  that  an 
ambiguously  worded  authority  will  be  most  strongly 
construed  against  the  maker,  but  nothing  will  be  read 
into  the  power  that  is  not  fairly  there."^ 

59.     Reese  v.  Mcdlock,  27  Tex.  120. 


American  Commercial  Law.  63 

A  few  examples  illustrate  this  rule. 

Example  16.  P  gave  A  a  power  of  attorney  to  collect 
his  debts,  calling  A  his  "general  agent"  to  transact  his 
business.  A  assigned  the  debts  to  B  who  brought  suit 
against  one  of  P's  debtors.  The  debtor  questioned  B's 
right  to  bring  the  suit.  Held,  that  A's  authority  was 
confined  to  the  collection  of  debts  and  that  he  had  no 
authority  to  assign  a  claim  to  B  even  though  he  was 
called  a  general  agent.  His  authority  will  depend 
entirely  upon  that  which  was  actually  given  him.^^ 

Example  17.  P  gave  A  a  power  of  attorney  to  make, 
indorse,  draw  and  accept  commercial  paper  in  A's 
behalf.  T  served  on  A  a  notice  of  dishonor  of  commercial 
paper.  Held  that  A  had  no  implied  authority  to  receive 
such  notice  to  bind  P.^i 

Sec.  49.  IMPLIED  (OR  APPARENT)  POWER  OF 
AGENT  TO  BORROW  MONEY.  An  agent  has  no  impUed 
or  apparent  power  to  borrow  money  unless  it  is  practically 
indispensable  to  enable  him  to  carry  out  the  express  power. 

It  will  readily  be  seen  that  the  power  of  an  agent  to 
borrow  money  is  one  by  which  he  can  readily  work  hurt 
to  his  principal;  and  while  the  principal  may  confer  it, 
and  very  frequently  does,  it  is  not  a  power  that  will  be 
readily  inferred.  To  be  implied  "it  must  be  practically 
indispensable  to  the  execution  of  the  duties  really 
delegated  in  order  to  justify  its  inference. "^2  it  is 
noteworthy  that  in  a  search  of  the  cases  the  courts  have 
very  rarely  held  the  power  to  be  implied.  It  is  prac- 
tically necessary  to  the  protection  of  a  lender  that  he 
have  the  principal's  word  for  it  that  the  agent  has  power 
to  borrow  money. 

60.  A\'ood  V.  McCain,  7  Ala.  800. 

61.  Wilcox  V.  Routh,  9  Smedes  &  Marsh  (Miss.)  476. 

62.  Consol.  Nat.  Bk.  v.  P.  C.  S.  S.  Co.,  95  Cal.  1. 


64  Law  of  Agency. 

Example  18.  N  appointed  H  a  general  manager  giving 
him  charge  of  one  of  its  eleven  agencievS,  with  power  to 
sell,  to  employ  assistants,  to  collect  accounts,  to  pay 
bills  and  to  rent  a  building.  He  borrowed  money  from 
the  bank  in  which  he  kept  his  agency  account.  Not  repay- 
ingfthe  loan,  the  principal  was  sued.  Held,  that  from 
the  facts  shown  no  power  to  borrowmoney  in  his  principal's 
behalf  would  be  inferred.  The  fact  that  defendant 
carried  on  the  sale  of  its  products  through  the  medium 
of  agencies  distributed  over  the  country  would  be  no 
ground  for  a  conclusion  that  the  various  agents  for 
making  sales  of  machinery  and  collecting  the  proceeds 
were  clothed  with  authority  to  borrow  money .^^ 

The  fact  that  an  agent  has  actual  power  to  go  into 
debt  for  the  purchase  of  supplies,  renting  premises,  etc., 
gives  him  no  implied  or  apparent  power  to  borrow 
money  for  those  purposes.  For  such  borrowed  money 
may  be  diverted  from  its  rightful  purpose.  Surely  I  can 
give  an  agent  an  authority  to  buy  goods  from  A  without 
giving  him  power  to  borrow  money  with  which  to  pay 
for  such  goods. 

Sec.  50.  IMPLIED  (OR  APPARENT)  POWER  OF 
AGENTS  TO  BIND  PRINCIPAL  UPON  COMMERCIAL 
PAPER.  The  implied  power  to  make  or  indorse  negotiable 
instruments  is  strictly  confined  to  those  cases  in  which  it  is 
necessary  in  order  to  enable  the  agent  to  carry  out  the  main 
power  conferred  upon  him. 

The  power  to  bind  a  principal  upon  commercial  paper 
is,  like  the  power  to  borrow  money,  a  dangerous  power. 
It  will  not  lightly  be  inferred.  It  will  however,  be 
upheld  where  reasonably  necessary  to  the  execution  of 
the  powers  conceded. 

63.     Merchant's  Nat.  Bk.  v.  Nichols,  223  111.  41. 


American  Commercial  Law.  65 

The  power  to  collect  a  debt,  even  if  it  be  collectable 
in  cash,  gives  the  agent  no  authority  to  endorse  a  check 
given  in  payment  of  it  and  a  bank  will  be  held  liable 
for  cashing  the  check  for  the  agent ;  for  the  bank  has  no 
right  to  increase  the  principal's  risk  of  loss  by  converting 
such  paper  into  cash.^ 

The  power  to  collect  gives  the  agent  no  authority  to 
take  paper  payable  to  himself,  even  though  he  could 
have  collected  in  cash.®^ 

Sec.  51.  IMPLIED  (OR  APPARENT)  POWER  OF 
AGENT  TO  SELL  PERSONAL  PROPERTY.  An  agent 
has  no  apparent  power  to  sell  personal  property  from  the  mere 
fact  of  the  principal's  giving  him  possession. 

An  agent,  or  for  that  matter,  any  bailee,  to  whom 
personal  property  has  been  entrusted  has  thereby  no 
apparent  authority  to  sell  the  same,  even  though  he  be 
a  dealer  in  that  line  of  goods.^^ 

So,  it  has  been  held  that  a  travelling  salesman  en- 
trusted with  a  sample  case  has  no  apparent  right  to 
sell  it.^'^  And  see  the  subject  developed  in  Sales  in  this 
series  to  the  effect  that  clothing  another  with  mere 
possession  of  goods  without  more,  does  not  establish 
the  true  owner  to  assert  his  title  against  a  purchaser. 

Sec.  52.  IMPLIED  (OR  APPARENT)  POWER  OF 
AGENT  WHO  HAS  INDICIA  OF  TITLE  TO  SELL 
GOODS.     One  who  clothes  another  with  the  indicia  of  title 

64.  Jackson  Paper  Bag  Co.  v.  Com.  Nat.  Bk.,  199  111.  151. 

65.  Baldwin  v.  Tucker,  112  Ky.  282,  57  L.  R.  A.  451.,  65 
S.  W.  841  (Contra:  Galbraith  v.  Weber,  107  Pac.  1050  (Wash.), 
a  case  which  seems  unsound). 

66.  Levi  v.  Booth,  58  Md.  305,  42  Am.  Rep.  332. 

67.  Kohn  v.  Washer,  64  Tex.  131,  53  Am.  Rep.  745. 
Bays — 5 


66  Law  of  Agency. 

is  estopped  to  set  up  his  ownership  against  an  innocent  pur- 
chaser for  value  of  the  property  represented  by  such  indicia. 

Upon  the  principle  of  estoppel  one  who  not  only  confers 
upon  another  the  possession  of  goods,  but  clothes  him 
with  indicia  of  title,  that  is,  warehouse  receipts,  bills  of 
lading  or  other  documentary  insignia  in  the  agent's 
name  with  the  principal's  consent,  confers  an  apparent 
ownership  which  prevents  the  true  owner  from  asserting 
his  title  against  one  who  has  dealt  with  the  agent  as 
owner  provided  he  relied  on  the  appearance  of  title, 
was  innocent  of  the  truth,  and  gave  value.^^ 

The  above  situation  can  hardly  be  called  one  of  agency 
in  any  phase.  It  is  a  doctrine  of  estoppel  to  assert 
ownership. 

Sec.  53.  IMPLIED  (OR  APPARENT)  POWER  OF 
AGENT  TO  SELL  TO  RECEIVE  PAYMENT.  An  agent 
who  has  power  to  sell  does  not  have  implied  or  apparent 
power  to  receive  the  price  unless  (1)  he  has  and  delivers  pos- 
session of  the  property  sold,  or  (2)  is  otherwise  placed  in  a 
position  from  which  a  person  would  reasonably  presume  he 
had  such  power. 

It  has  been  said  that  there  is  no  apparent  power  in 
an  agent  to  receive  the  price  of  an  article  sold  by  him 
unless  he  delivers  the  thing  as  he  sells  it,  or  is  "behind 
the  counter,"  that  is,  occupies  a  position  with  the 
principal's  assent  from  which  it  is  reasonable  to  presume 
that  he  is  placed  there  to  receive  the  price.  If  he  is 
"behind  the  counter"  he  has  apparent  authority  to 
receive  payment  wherever  it  reasonably  appears  he  is 
there  for  that  purpose  whether  he  or  some  other  agent 
took  part  in  the  original  transaction. 

68.  Calais  Steamboat  Co.  v.  Scudder,  2  Bl.  (U.  S.)  372, 
Pickering  v.  Busk,  15  East.  38. 


American  Commercial  Law.  6^ 

Example  19.  L  is  an  importer  of  earthenware.  A  is 
his  salesman.  A  sells  goods  to  S  a  hotel  keeper.  After- 
wards A  goes  to  S's  place  of  business  and  collects,  and 
does  not  account  for  the  money.  L  sues  S,  and  held 
that  he  can  recover.^^ 

Example  20.  G,  a  dealer  in  safes,  employed  B  to 
travel  and  take  orders  for  safes.  B  took  an  order 
from  K  which  was  transmitted  to  G.  Afterwards  B 
collected  from  K  and  did  not  account  to  G.  G  sued 
K.     Held,   he  could   recover.'^^ 

Sec.  54.  IMPLIED  (OR  APPARENT)  AUTHORITY  OF 
SELLING  AGENT  TO  EXTEND  CREDIT  ON  SALES. 
An  agent  to  sell  has  no  implied  or  apparent  authority  to  sell 
on  credit  unless  it  is  a  custom  of  the  trade  or  under  the  facts 
it  is  reasonable  to  presume  he  has  such  power. 

An  agent  does  not  have  implied  or  apparent  authority 
to  sell  on  credit  unless  the  facts  are  as  above  stated.'^i 

Sec.  55.  IMPLIED  (OR  APPARENT)  POWER  OF 
BUYING  AGENT  TO  BUY  ON  CREDIT.  An  agent  with 
power  to  buy  has  impliedly  power  to  buy  on  credit  unless  he 
is  furnished  cash,  and  has  apparent  power  even  when  furnished 
with  cash  if  there  is  a  custom  of  the  trade  to  buy  on  credit, 
or  if  the  circumstances  justify  a  belief  in  such  power. 

The  power  to  sell  on  credit  is  not  fraught  with  much 
danger  to  third  persons,  as  the  third  person  has  not 
paid  the  price  and  at  most  can  be  made  only  to  account 
for  the  goods  or  the  price;  but  the  power  of  an  agent 
to  buy  on  credit  is  more  dangerous.  In  such  case  the 
third  person  may  have  parted  with  his  goods  to  an 

69.  Law  V.  Stokes,  3  Vroom  (N.  Y.)  249j 

70.  Greenwood  v.  Keaton,  9  111.  Ap.  183. 

71.  Norton  v.  Nevills,  174  Mass.  243,  54  N.  E.  537. 


68  Law  of  Agency. 

agent  who  had  cash  to  pay  for  them  who  absconds  with 
both  goods  and  cash,  leaving  the  third  person  with  no 
claim  against  the  principal  unless  he  can  maintain  a 
position  that  the  agent  had  power  to  buy  on  credit. 
If  an  agent  is  furnished  with  the  cash  he  has  no  implied 
power  to  buy  on  credit,  at  least  generally  speaking.'^^ 
But  does  he  have  apparent  power?  It  has  been  held 
that  if  he  is  a  general  agent  he  has  such  power.''^  fhe 
true  rule  would  seem  to  be  that  if  the  extent  of  his 
agency  and  all  the  circumstances  fairly  indicate  that  he 
has  such  authority  the  third  person  may  rely  upon  such 
appearance  of  authority. 

Sec.  56.  IMPLIED  (OR  APPARENT)  POWER  TO 
WARRANT.  An  agent  having  authority  to  sell  has  implied 
or  apparent  power  to  make  only  those  warranties  usually  made 
in  the  usage  of  the  trade. 

Whether  an  agent  having  authority  to  sell  personal 
property  has  the  power  to  warrant  the  same  when  that 
power  has  not  been  expressly  conferred,  has  caused  a 
difference  of  opinion  among  the  authorities.  It  is  per- 
haps more  generally  held  that  there  is  an  implied  and 
therefore  an  apparent  authority  of  the  agent  to  bind  the 
principal  upon  warranties  of  articles  sold  by  the  agent 
under  the  authority  of  the  principal  where  such  war- 
ranties are  customary  in  the  trade.'^^ 

In  this  connection  it  must  be  remembered  that  a 
seller  of  an  article  impliedly  warrants  as  to  its  mer- 
chantability, fitness  for  purpose  purchased,  etc.,  under 
the  general  law  of  sales  according  to  the  rules  which  we 
develop  in  connection  with  that  subject,  regardless  of 

72.  Komorowski  v.  Krumdick,  56  Wise.  23. 

73.  Pac.  Biscuit  Co.  v.  Dagger,  40  Oreg.  362,  67  Pac.  32. 
(General  agent  was  instructed  not  to  use  credit.) 

74.  Johns  V.  Jaycox,  67  Wash.  403. 


American  Commercial  Law.  69 

the  fact  whether  the  sale  is  by  the  principal  or  his  agent. 
A  study  of  the  cases  will  reveal  that  the  courts  have  not 
always  kept  this  fact  in  mind.  The  authority  of  the 
agent  cannot  be  in  question  and  ought  not  to  be  con- 
sidered where  were  the  same  sale  made  by  the  principal 
there  would  be  an  implied  warranty  of  quality.  The 
question  now  under  consideration  is  the  power  of  the 
agent  to  expressly  warrant  in  cases  in  which  the  same 
warranty  would  not  be  implied.  If  it  would  be  implied 
the  fact  that  the  agent  puts  it  in  words  ought  to  be  im- 
material and  add  nothing  to  the  case  one  way  or  another. 

Sec.  57.  ADMISSIONS  OF  AGENT.  The  admissions  of 
the  agent  are  binding  on  the  principal  when  made  in  reference 
lo  and  as  a  part  of  the  act  which  he  is  authorized  to  do. 

If  the  agent  makes  admissions  in  reference  to  the  act 
which  he  is  authorized  to  do,  as  a  part  of  the  transaction, 
the  principal  is  bound  by  such  admissions  and  they  may 
be  used  against  him.  It  is  essential  that  the  admission 
be  made  as  a  part  of  the  act  which  he  is  authorized  to 
do,  and  from  this  it  follows  that  admissions  made  after 
the  act  is  over,  so  that  they  do  not  form  a  part  of  the 
act  are  not  binding  upon  the  principal.  So  they  are  not 
binding  if  made  before  the  act  is  begun ;  they  are  not  a 
part  of  it  and  therefore  are  not  admissible.  It  does  not 
follow  from  this  that  there  may  not  be  some  little 
separation  between  the  doing  of  the  act  and  the  making 
of  the  admission,  so  long  as  it  is  made  as  really  a  part 
of  it.  Each  case  must  be  decided  on  its  own  peculiar 
grounds  and  the  court  must  consider  whether  the  ad- 
missions are  a  part  of  the  thing  done — the  res  gestae — 
or  are  an  afterthought,  or  independent  of  the  act.  The 
reason  of  the  rule  is  that  a  principal  ought  not  to  be 
bound  by  assertions  made  at  any  time  and  possibly  out 
of  wrong  motives,  and  when  the  truth  may  be  consciously 
or  unconsciously  departed  from,  as  a  result  of  delibera- 


70  Law  of  Agency. 

tion;  but  if  they  are  spontaneously  uttered  by  the  agent 
at  or  about  the  time  the  act  is  done  and  as  a  part  of  it, 
they  possess  the  likelihood  of  truth J^  The  agent  may, 
of  course,  testify  at  the  trial  for  or  against  the  principal. 
We  are  considering  above  the  right  of  other  witnesses  to 
testify  to  the  prior  admissions  of  the  agent  as  binding 
upon  his  principal. 

Sec.  58.  AUTHORITY  OF  AGENT  TO  RECEIVE 
NOTICE.  Notice  given  to  an  agent  while  acting  as  such  is 
notice  to  the  principal  and  the  knowledge  of  the  agent  which 
he  possesses  at  the  time  of  the  transaction  will  be  imputed  to 
the  principal,  (1)  unless  it  is  his  duty  not  to  disclose  it,  or  (2) 
unless  he  is  known  to  be  acting  adversely  to  the  principal. 

A  principal  is  constructively  present  when  the  agent 
acts  for  him  and  in  the  act  the  agent  and  the  principal 
are  identified  together.  Whatever  notice  the  agent 
receives  in  respect  to  the  transaction  which  he  is  carry- 
ing on  is  notice  to  the  principal,  and  whatever  knowledge 
the  agent  has  in  respect  to  that  transaction  is  presumed 
to  be  the  knowledge  of  the  principal. 

If  the  knowledge  which  the  agent  has  is  knowledge 
that  he  is  not  at  liberty  to  disclose  to  his  principal,  it 
will  not  be  imputed  to  the  principal.  Thus  disclosures 
confidentially  made  by  one  client  to  an  attorney  at  law 
cannot  rightfully  be  disclosed  to  another  client,  and 
therefore  will  not  be  imputed  to  that  client,  though  they 
affect  the  matter  of  the  agency. 

So  if  an  agent  is  known  to  be  acting  adversely  to  his 
principal,  it  is  not  to  be  presumed  that  notice  given  to 
him  or  knowledge  in  any  way  acquired  by  him  will  be 
imparted  to  the  principal,  and  therefore  the  principal 
is  not  bound  thereby .'^^ 

75.  Shafer  v.  Laycock,  168  Pa.  497. 

76.  Cowan  v.  Curran,  216  111.  598. 


CHAPTER  8. 
UNDISCLOSED  PRINCIPALS. 

Sec.  59.  GENERAL  RULE.  If  the  principal  is  undis- 
closed at  the  time  of  the  transaction,  but  subsequently  discov- 
ered, the  third  person  may  elect  to  hold  such  principal  because 
he  is  the  real  party  in  interest. 

We  have  heretofore  noticed  that  an  agent  may  keep 
his  principal  undisclosed,  and  bind  himself  upon  the 
contract.  He  may  do  this  because  he  acts  under  in- 
structions to  that  effect,  or  because  he  is  careless  in  the 
manner  in  which  he  performs  his  agency,  or  because 
for  some  reason  he  chooses  to  bind  himself.  In  such 
a  case,  he  becomes,  as  we  have  seen,  personally  liable  to 
the  third  person.  But  the  third  person,  upon  discover- 
ing the  identity  of  the  principal,  may,  subject  to  the 
exceptions  hereafter  stated  choose  to  hold  the  principal. 
This  arises  out  of  the  consideration  that  the  principal  is 
the  real  party  in  interest  and  identified  in  the  trans- 
action with  his  agent,  and  that  as  he  is  the  real  party, 
it  ought  to  be  the  third  person's  right  to  hold  him  as 
such.'^ 

Thus  we  may  suppose  that  A  is  about  to  buy  goods 
of  C  for  P.  He  chooses  however,  to  act  in  his  own 
name  and  either  to  keep  the  fact  concealed  that  there 
is  another  person  who  is  principal,  or  if  he  discloses  the 
fact  that  there  is  a  principal,  then  to  keep  that  principal's 
identity    concealed.     He    therefore    makes    a    contract 

n.     Violett  V.  Powell's  Adm'rs,  10  B.  Monr.  347. 

71 


J2  Law  of  Agency. 

with  C,  whereby  for  certain  goods  which  C  dehvers  him, 
he  promises  to  pay  C  a  certain  amount  of  money.  This 
is,  say  a  written  contract  executed  in  A's  name  as 
though  he  were  the  real  principal.  C  can  hold  A  on 
this  contract,  whether  he  knows  that  A  is  only  an  agent 
or  not.'''^  And  if  at  the  time,  he  does  know  that  A  is 
only  an  agent  and  knows  the  identity  of  A's  principal, 
he  cannot  afterwards  hold  P,  because  in  that  case  he 
may  be  said  to  have  deliberately  chosen  to  make  his 
contract  with  A  and  not  with  P.  If,  however,  at  the 
time  he  does  not  know  that  A  is  merely  an  agent,  or  if 
he  does  know  he  is  an  agent  but  does  not  know  the 
principal's  identity,  then  he  may  upon  discovering  the 
identity  of  the  principal,  either  continue  to  hold  A  or 
elect  to  hold  P. 

This  rule,  however,  is  subject  to  some  exceptions 
which  we  will  notice. 

Sec.  60.  FIRST  EXCEPTION  TO  RULE.  Third  person 
cannot  hold  principal  on  election  to  hold  agent.  If  the  third 
person  after  discovering  the  principal's  identity  elects  to  hold 
the  agent,  he  cannot  afterwards  hold  the  principal.  The  third 
person  must  elect  to  hold  the  principal  within  a  reasonable 
time,  but  his  election  need  not  be  verbal.  It  may  be  inferred 
from  his  conduct. 

The  third  person  has  contracted  with  the  agent  as  a 
principal.  He  may  hold  the  agent  as  the  contracting 
party,  because  the  agent  has  seen  fit  to  keep  the  prin- 
cipal concealed,  and  to  bind  himself.  Upon  discovery 
of  the  identity  of  the  principal  the  third  person  may  hold 
him  as  such.  But  he  must  make  his  election,  and  hav- 
ing made  it  must  stand  by  it.'^^    A  failure  within  a  rea- 

78.  Kayton  v.  Barnett,  16  N.  Y.  625. 

79.  Kingsley  v.  Davis,  104  Mass.  178. 


American  Commercial  Law.  'ji 

sonable  time  to  indicate  by  word  or  act  that  he  chooses 
to  hold  the  principal  will  be  taken  as  an  election  to  hold 
the  agent  and  he  cannot  afterwards  say  he  will  hold 
the  principal.  A  third  person,  however,  cannot  be  said 
to  have  made  his  election  so  long  as  he  is  unadvised  as 
to  the  facts.  Thus,  billing  the  agent  as  the  real  debtor, 
taking  notes  from  him,  etc.,  would  be  immaterial  to 
show  an  election  before  the  facts  has  become  known  to 
the  third  person.  If,  however,  he  continues  in  these 
or  other  ways  to  treat  the  agent  as  the  real  debtor  after 
discovery  of  the  facts,  that  will  constitute  an  election. 

Sec.  61.  SECOND  EXCEPTION  TO  RULE.  Third  per- 
son's  right  to  hold  principal  subject  to  state  of  account  be- 
tween principal  and  agent.  If  the  state  of  accounts  between 
the  principal  and  agent,  as  where  the  principal  has  paid  money 
over  to  the  agent  to  pay  to  the  third  party,  renders  it  inequi- 
table to  allow  the  third  person  to  hold  the  principal,  he  cannot 
hold  such  principal  and  must  be  satisfied  with  his  recourse 
against  the  agent. 

Giving  the  third  person  the  right  to  hold  the  un- 
disclosed principal  when  discovered,  is  giving  him  a 
right  to  rely  upon  a  source  which  he  did  not  rely  upon 
when  the  contract  was  made.  It  would  be  really  no 
hardship  upon  him  to  deny  him  the  right  altogether  for 
it  would  not  be  depriving  him  of  anything  which  he  had 
relied  upon.  Therefore  the  rule  is  not  extended  where 
it  would  operate  as  a  hardship  upon  the  principal. 
Thus  if  the  principal  believing  that  the  agent  has  settled 
with  the  third  person,  or  in  order  that  he  may  settle 
with  the  third  person,  pays  the  agent  money,  so  that  if 
he  had  to  pay  the  third  party  it  would  amount  to  pay- 
ing the  account  again  if  the  agent  were  not  responsible, 
then  the  third  person  cannot  hold  the  principal,  but 


74  Law  of  Agency. 

must  look  to  the  person  to  whom  he  looked  when  the 
contract  was  made.  It  is  consequently  declared  that 
the  rule  is  subject  to  the  state  of  accounts  between  the 
principal  and  agent.^P  The  payment  or  settlement 
must,  however,  have  been  made  in  good  faith,  and  it 
must  have  been  made  before  the  third  person  elected  to 
hold  the  principal. 

Sec.  62.  THIRD  EXCEPTION  TO  RULE.  Rule  does 
not  apply  to  sealed  instruments.  Only  those  in  whose  name 
a  sealed  instrument  is  executed  can  be  held  liable  thereon. 

We  have  already  seen  that  one  cannot  be  held  on  a 
sealed  instrument  if  he  is  not  named  therein,  or  indeed 
unless  it  may  be  said  to  be  executed  by  him  in  person 
or  by  agent.  Consequently  the  rule  we  are  now  con- 
sidering does  not  apply  if  the  contract  is  under  seal.^^ 

In  some  jurisdictions  the  seal  has  lost  some  of  its 
ancient  force  and  in  some  has  been  altogether  abolished. 
In  such  states  the  rule  would  apply  as  well  to  a  sealed 
instrument  as  to  any  other. 

Sec.  63.  FOURTH  EXCEPTION  TO  RULE.  Rule  does 
not  apply  to  negotiable  instruments.  Only  those  in  whose 
name  a  negotiable  instrument  is  executed  can  be  held  liable 
thereon. 

We  have  noted,  also,  that  one  cannot  be  held  liable 
on  a  negotiable  instrument  unless  it  is  made  in  his 
name.  Consequently  the  rule  we  are  now  considering 
has  no  application  to  negotiable  instruments. 

Sec.  64.  WHERE  ALLEGED  UNDISCLOSED  PRIN- 
CIPAL HAD  NOT  CONFERRED  AUTHORITY.     Third 

80.  The  law  on  this  subject  is  not  so  well  settled  as  is  desir- 
able.   See  Mechem,  Agency,  2nd  Ed.  Sec.  1749. 

81.  Huntington  v.  Knox,  7  Cush.  (Mass.)  374. 


American  Commercial  Law,  75 

person  cannot  hold  undisclosed  principal  except  in  cases  of 
actual  authority  previously  conferred.  An  undisclosed  princi- 
pal cannot  ratify.  He  can  be  held  by  the  third  person  only 
in  case  he  gave  actual  authority  to  the  agent  prior  to  the  time 
the  agent  acted,  to  do  the  very  act  that  the  agent  did. 

It  is  discussed  in  another  connection,  that  a  third 
person  may  hold  a  disclosed  principal  where  the  agent 
lacked  real  authority,  but  had  apparent  authority  to  do 
the  act  by  reason  of  the  situation  in  which  the  principal 
placed  him.  We  have  also  noticed  that  where  there  is 
no  authority,  either  actual  or  apparent,  a  disclosed 
principal  may  cure  the  defect  and  become  bound  by 
ratification.  None  of  this  reasoning  applies  to  the  case 
of  an  undisclosed  principal.  The  third  person  can  hold 
him  only  in  cases  where  the  agent  pursued  the  actual 
authority  given  him.  There  is  no  room  for  the  doctrine 
of  apparent  authority,  for  there  can  be  no  apparent 
authority  where  there  was  not  known  to  be  any  author- 
ity, or  any  particular  authority.  And  it  is  also  settled 
that  the  third  person  cannot  claim  that  the  undisclosed 
principal  ratified  the  act.  An  undisclosed  principal 
cannot  ratify. 

Sec.  65.  UNDISCLOSED  PRINCIPAL'S  RIGHT  TO 
HOLD  THIRD  PERSON.  If  the  principal  is  undisclosed, 
the  principal  may  at  his  election  hold  the  third  person  on  the 
contract,  except,  (1)  where  the  state  of  accounts  betv/een 
third  person  and  agent  would  make  it  unjust,  or  (2)  where  the 
contract  is  under  seal,  or  (3)  is  expressed  in  the  form  of  nego- 
tiable paper,  or  (4)  also  where  the  rights  sought  to  be  asserted 
by  the  principal  are  rights  to  personal  service,  or  the  perform- 
ance of  personal  obligations. 

We  have  seen  how  an  undisclosed  principal  can  be 
sued  when  discovered  by  the  other  party.     There  is 


76  Law  of  Agency. 

the  corresponding  right  of  the  principal  to  step  into  nis 
agent's  shoes,  disclose  himself  and  assert  his  rights 
under  the  contract.     This  rule  is  subject  to  exceptions. 

First.  If  the  third  person  has  already  paid  the  agent 
he  will  not  be  compelled  to  repay  the  principal,  but 
the  principal  must  look  for  settlement  from  the  agent. 

Second.     The  reasoning  concerning  instruments  under 
seal  set  forth  in  section  64  is  applicable  here. 
^    Third.     The  same  may  be  said  where  the  contract  is 
in  the  form  of  a  negotiable  instrument. 

Fourth.  The  third  person  can  only  assert  rignts  wnich 
do  not  involve  the  performance  of  services  personal  in 
nature,  or  involving  the  personal  skill  or  credit  of  the 
undisclosed  principal.  Thus  if  C  deals  with  A,  as  a 
principal,  whereas  A  is  in  fact  an  agent,  P,  the  principal 
can  only  step  in  where  that  would  not  affect  C's  rights 
any  more  than  if  A  had  made  an  assignment  to  P  of 
rights  under  his  contract.  But  A  cannot  assign  nor  can 
an  undisclosed  principal  assert  rights  to  personal 
services,  nor  obligations  personal  in  nature.  If  C  had 
dealt  with  A  he  has  a  right  not  to  have  another  party 
to  the  contract  thrust  upon  him.  One  may  choose  with 
whom  he  will  contract.^2  Yet  as  to  rights  growing  out 
of  such  contract  which  are  not  personal  in  nature,  as  a 
right  to  receive  money,  just  as  they  may  be  assigned, 
so  they  may  be  asserted  by  an  undisclosed  principal. 

82.     Cowan  v.  Curran,  216  111.  598. 


CHAPTER  9. 

PRINCIPAL'S  LIABILITY  FOR  TORTS  OF  AGENTS. 

Sec.  66.  AUTHORIZED  TORTS.  If  the  principal  au- 
thorizes the  tort,  he  is  liable. 

If  before  the  commission  of  a  tort  by  an  agent  the 
principal  authorizes  or  counsels  its  commission  he  is 
liable  as  a  tort  feasor. 

Sec.  67.  RATIFIED  TORTS.  A  principal  is  liable  for  a 
tort  which  was  committed  as  part  of  an  act  which  the  principal 
now  ratifies. 

See  this  subject  discussed  elsewhere.^^ 

Sec.  68.  LIABILITY  FOR  TORTS  WITHIN  SCOPE 
OF  AUTHORITY.  The  principal  is  liable  for  the  torts  of 
the  agent  which  are  committed  within  the  Lcope  of  the  au- 
thority. 

When  an  agent  does  an  act  for  the  principal,  the 
principal  is  theoretically  present  doing  it.  If  while 
engaged  in  the  performance  thereof  the  agent  commits 
a  tort  which  may  be  said  to  be  a  part  of  it,  the  prin- 
cipal will  be  held  as  though  he  had  himself  committed 
the  tort  or  counselled  its  commission.  The  tort,  how- 
ever, must  be  a  tort  which  really  forms  a  part  of  the 
act  which  the  principal  authorized;  it  must  be  done  in 
the  course  of  the  employment  and  within  the  scope  of 
the  authority  given  him. 

83.     See  Section  21. 

17 


78  Law  of  Agency. 

The  fact  that  a  principal  will  be  held  for  the  torts  of 
the  agent  is  based  upon  sound  policy.  It  results  in 
making  a  principal  careful  in  choosing  his  agents,  and 
it  prevents  secret  arrangements  between  the  principal 
and  agent  that  the  agent  shall  commit  a  tort  apparently 
unassented  to  by  the  principal.  But  the  real  basis  for 
the  rule  is  probably  that  the  principal  and  agent  are 
in  law,  one.^* 

Sec.  69.  WHAT  TORTS  WITHIN  THE  SCOPE  OF 
THE  AUTHORITY.  A  tort  is  within  the  scope  of  the  au- 
thority so  as  to  render  the  principal  liable  to  third  persons 
therefor  when  it  occurs  while  the  agent  is  engaged  in  his  work, 
as  a  part  thereof. 

The  principal  is  liable  for  an  agent's  torts  when  they 
are  within  the  scope  of  the  authority.  This  implies  two 
things.  First,  that  the  tort  occur  during  the  time  of 
the  employment,  and  second,  that  it  be  a  part  of  the  act 
done  in  the  principal's  behalf  and  not  independently 
thereof.    Let  us  consider  each  of  these  tests. 

(1)  Principal  (or  master)  not  liable  for  agent's  (or  serv- 
ant's) tort  unless  it  occurs  during  the  performance  of  the 
employment. 

It  is  very  clear  that  I  am  not  liable  for  another  person's 
tort  merely  because  he  is  one  who  works  for  me.  He 
may  assault  a  person — after  hours,  and  far,  perhaps, 
from  the  scene  of  his  work.  I  am  not  answerable.  He 
must  be  at  work  when  the  tort  is  committed,  but  some 
interesting  questions  arise  in  this  connection. 

Example  21.  In  an  early  English  case,  one  Joel  was 
crossing  a  street  and  was  knocked  down  by  a  cart  and 

84.     Dempsey  v.  Chambers,  154  Mass.  330, 


American  Commercial  Law.  79 

horse  belonging  to  Morrison.  Joel  sued  Morrison  and 
there  was  conflicting  evidence  whether  the  servant  was 
on  an  errand  of  his  own  or  about  his  master's  business. 
And  the  court  said  that  the  master  was  liable  even  if 
the  servant  was  going  out  of  his  way  at  the  time  and 
against  his  master's  business,  if  he  was  still  about  that 
business,  but  if  he  had  the  cart  out  for  a  "frolic  of  his 
own"  the  master  would  not  be  liable.^^ 

Translating  the  above  example  into  a  picture  of  today, 
with  the  term  "joyriding"  for  "frolic  of  his  own,"  we 
have  a  situation  fraught  with  much  greater  danger,  but 
which  needs  the  same  distinction.  The  cases  are 
numerous. 

Example  22.  One  Fairman  was  driving  a  car  belong- 
ing to  Windsor  Motor  Car  Co.,  by  which  he  was  em- 
ployed. He  was,  however,  at  the  time,  driving  upon  a 
pleasure  trip  of  his  own.  Plaintiffs  intestate  was  killed 
by  Fairman's  alleged  negligence.  The  court  said,  "If 
he  was  not  acting  at  the  time  within  the  scope  of  his 
employment,  but  was  on  a  purely  pleasure  trip  of  his 
own,  the  company  cannot  be  held  liable.^^ 

In  another  case^  the  evidence  was  that  the  delivery 
boy  driving  the  automobile  by  which  plaintiff  was 
injured  had  made  his  last  delivery  and  was  going  in  a 
longer  route  than  was  necessary  to  the  garage,  permit- 
ting guests  to  ride  with  him,  was  not  conclusive  evidence 
that  the  master  was  or  was  not  liable  and  the  question 
was  for  the  jury  to  determine  whether  he  was  about 
his  master's  business,  or  upon  a  trip  of  his  own  and  a 
verdict  for  plaintiff  against  the  master  was  sustained. 

85.  Joel  V.  Morrison,  6  C.  &  P.  501. 

86.  Stern  v.  Intern.  Rwy.  Co.,  153  N.  Y.  520;  see,  also, 
Cunningham  v.  Castle,  111  N.  Y.  Suppl.  1056. 

87.  Maloy  v.  Rosenbaum  Co.,  260  Pa.  466,  103  All.  882. 


8o  Law  of  Agency. 

(2)  The  tort  must  be  a  part  of  the  act  done  in  the  further- 
ance of  the  principal's  business. 

Even  if  the  tort  is  committed  concededly  while  the 
employee  is  at  work,  it  may  not  be  attributable  to  the 
principal.  This  question  requires  the  consideration  of 
the  nature  of  the  work  which  the  employee  is  authorized 
to  do,  and  the  nature  of  the  tort  committed  by  him. 
Perhaps  we  can  make  one  exception  to  this,  that  is, 
the  case  of  negligence.  A  negligent  performance  of  his 
duties  by  the  employee  will  render  the  principal  liable 
to  the  party  damaged  by  the  causal  operation  of  such 
negligence,  no  matter  what  the  nature  of  the  work.^s 
In  this  connection,  however,  very  difficult  questions 
arise  as  to  what  is  the  duty  of  the  employee,  for  if  he 
performs  some  act  negligently  which  he  had  no  duty  to 
perform  the  master  is  not  liable. 

Fraud.  If  the  employee  is  an  agent  to  deal  with 
third  persons,  the  principal  is  liable  for  the  agent's 
frauds  by  which  he  performs  his  authority.^^  But 
whether  the  principal  must  answer,  depends  on  whether 
the  fraud  has  a  part  of  authorized  acts. 

Assault  and  Battery.  False  arrest.  Whether  the 
principal  is  liable  depends  entirely  on  the  agent  or  em- 
ployee's duty.  If  put  to  guard  the  property  as  a  watch- 
man or  detective,  or  if  generally  he  has  a  duty  of  pro- 
tection, the  employer  is  liable  for  a  wrongful  arrest  or 
assault  and  battery.^*^ 

Thus  a  wrongful  arrest  by  a  detective  would  make 
his  employer  liable,-  but  the  same  arrest  by  a  window 
washer,  would  not  rnake  him  liable. 

Defamation.     Defamation  by  an  agent  may  or  may 

88.  See  cases  cited  in  the  notes  just  above. 

89.  Lloyd  v.  Grace,  (1912)  A.  C.  716  (Eng.). 

90.  Staples  v.  Schmidt,  18  R.  I.  224. 


American  Commercial  Law.  8i 

not  render  an  employer  liable.  If  connected  with  a  sale 
or  attempted  sale  by  a  general  manager.^i  the  employer 
will  be  liable.  Newspapers  are  liable  for  defamatory 
statements  of  their  editors,  published  therein. 

91.     Pa.  Iron  Works  v.  Henry  Voght  Machine  Co.,  29  Ky. 
L.  R.  861.  96  S.  W.  551.  8  L.  R.  A.  (N.  S.)  1023. 


Bays — 6 


CHAPTER  10. 

THE   DUTIES   AND    LIABILITIES    OF   THE   AGENT 
TO  THE  THIRD  PERSON. 

Sec.  70.  GENERAL  STATEMENT.  Where  the  agent 
regularly  pursues  his  authority  and  acts  as  an  agent  and  not 
as  principal,  and  is  guilty  of  no  wrong,  he  is  not  liable  to  the 
third  person  with  whom  he  acts  for  the  principal. 

We  have  already  considered  that  an  agent  is  an 
intermediary,  a  mere  representative,  employed  to  make 
or  in  some  way  affect  contractual  ties  between  his 
principal  and  third  persons.  That  done,  he  drops  out; 
no  liability  attaches  to  him.  This  is  a  matter  of  com- 
mon knowledge;  the  agent  who  writes  insurance  does 
not  become  liable  on  the  policy;  the  real  estate  agent 
who  sells  the  land  of  another,  assumes  no  responsibility 
upon  the  contract;  the  agent  who  procures  a  loan  for 
his  principal  is  not  liable  if  the  principal  does  not  repay. 
The  agent  is  not  surety  for  the  principal. 

An  agent  may  bind  the  principal  when  the  principal 
holds  out,  expressly  or  impliedly,  that  the  agent  has 
authority.  This  authority  the  agent  may  not  actually 
have;  it  is  enough  that  the  principal  places  the  agent  in 
such  a  position  that  a  third  person  may  assume  him  to 
have  such  authority.  There  is  a  holding  out  by  the 
principal,  and  it  is  on  that  holding  out  that  the  third 
person  relies  in  dealing  with  the  agent.  But  we  may 
have  another  set  of  circumstances.  There  may  be  a 
holding  out  by  the  agent,  and  none  by  the  principal, 

82 


American  Commercial  Law.  83 

upon  which  the  third  persons  relies.  The  agent  may 
come  to  me  and  say,  "I  am  P's  agent  for  this  purpose," 
and  I  may  rely  on  that  alone.  In  that  case  I  cannot 
hold  P  if  A  was  not  authorized  by  P,  and  furthermore 
I  cannot  hold  A,  the  agent,  on  the  contract,  because  I 
did  not  purport  to  make  that  contract  with  him,  but  with 
P,  through  him.  Yet  A  has  represented  to  me  that  he 
was  P's  agent,  and  acting  upon  that  representation  I 
have  done  things  whereby  I  am  damaged  unless  I  can 
hold  somebody.  Therefore  the  law  gives  me  the  right 
to  hold  A,  upon  a  warranty  by  him  that  he  has  authority. 
We  will  consider  this  liability  and  also  the  other 
cases  of  the  agent's  liability  to  third  persons. 

A.    Liability  of  Agent  in  Contract. 

(a)     The  agent  warrants  his  authority. 

Sec.  71.  WARRANTY  OF  AUTHORITY  BY  AGENT. 
If  an  agent  expressly  claims  to  have  authority  or  by  his  acts 
indicates  that  he  has  authority,  he  warrants  his  authority;  but 
if  the  third  person  knows  the  facts  as  well  as  the  agent,  there 
is  no  warranty. 

An  agent  may  expressly  state  that  he  has  authority. 
He  may  do  this  because  he  thinks  he  has  authority  or 
because  he  intends  to  deceive.  In  either  case  he  is 
liable  to  the  person  who  thus  deals  with  him,  and  who 
on  account  of  lack  of  authority,  apparent  or  real,  could 
not  hold  the  principal,  and  therefore  suffers  damages. 
Thus  suppose  that  A  states  to  C  that  he  has  been  sent 
by  P,  to  purchase  C's  cattle.  C  thereupon  delivers  his 
cattle  to  A,  to  deliver  to  P.  The  cattle  die  on  the  way 
through  no  fault  of  A.  In  this  case  if  A  had  had  actual 
or  apparent  authority,  he  could  not  beheld,  as  the  con- 
tract would  be  between  C  and  P,  with  A  as  a  mere 


84  Law  of  Agency. 

representative  of  P.  P  would  be  responsible  as  delivery 
to  his  agent  would  be  delivery  to  him.  But  if  A  lacks 
authority  C  is  not  without  remedy.  He  can  hold  A 
upon  his  statement  that  he  has  authority,  on  the  strength 
of  which  he  parted  with  the  cattle. 

If,  however,  in  this  case,  C  was  in  possession  of  all 
the  facts,  and  in  common  with  A,  misconstrued  them, 
he  could  not  hold  A.  Thus  if  A  had  said:  "I  have  here 
a  letter  which  P  has  sent  me,  in  respect  to  the  purchase 
of  cattle,  and  I  think  from  it  that  I  have  authority  to 
buy  cattle,"  and  C,  upon  reading  the  letter,  had  assented 
to  that  view,  yet  the  legal  effect  of  the  letter  was  not 
to  give  A  authority  to  buy  cattle,  but  merely,  say,  to 
make  inquiries  concerning  their  purchase,  here  there 
would  be  no  warranty  by  A  of  his  authority,  for  there 
would  be  no  reliance  upon  A's  assertions  that  he  had 
authority. 

It  is  not  necessary  that  the  agent  expressly  state  that 
he  has  authority.  An  implication  to  that  effect  may 
arise  from  the  facts,  and  this  would,  perhaps,  be  the 
more  usual  case.  Indeed,  the  agent  by  acting  as  agent 
and  by  purporting  to  bind  another  person  as  principal, 
holds  himself  out  as  having  the  authority  to  so  act 
and  thereby  warrants  himself  to  have  authority. 

Example  23.  The  P  bank  by  A,  as  Vice  President, 
guaranteed  a  commercial  account.  The  bank  being  sued 
on  the  guaranty  defended  that  it  had  no  power  as  a 
bank  to  make  such  an  engagement,  not  being  proper 
banking  business.  The  court  sustained  the  defense. 
The  plaintiff  then  sued  the  Vice  President  upon  the 
ground  that  he  warranted  his  authority.  But  the  court 
held  that  inasmuch  as  the  third  person  was  chargeable 
as  a  matter  of  law  with  the  power  of  a  bank  and  there- 
fore must  be  taken  to  have  known  that  the  Vice  President 


American  Commercial  Law.  85 

had  no  powers  to  bind  the  bank  upon  this  guaranty, 
there  was  no  warranty  of  authority.^2 

(b)     Agent  having  authority  to  bind  principal  may  instead 
bind  himself. 

Sec.  72.  GENERAL  STATEMENT.  One  who  is  an  agent 
and  has  fiUl  power  to  bind  his  principal  may  nevertheless  bind 
himself. 

There  is  nothing  to  prevent  an  agent  from  binding 
himself  upon  a  contract  made  by  him.  He  may  do  this 
for  a  variety  of  reasons.  He  may  be  careless  in  the 
execution  of  his  authority.  He  may  not  disclose  the 
principal,  preferring  for  some  reason  to  let  only  his  own 
identity  appear.  Or  it  may  be  that  his  principal  has 
not  sufficient  credit  with  the  person  dealt  with  and 
therefore  the  agent  binds  himself. 

Sec.  73.  PRINCIPAL  UNDISCLOSED.  If  the  principal 
is  undisclosed  by  the  agent  the  agent  is  liable. 

If  the  agent  does  not  disclose  his  principal,  the  agent 
is  liable.  In  some  such  cases  the  third  person  upon  dis- 
covering the  principal  may  elect  to  hold  him,  because 
he  is  the  real  party  in  interest,  as  we  note  in  another 
connection;  but  he  may,  if  he  choose,  in  all  cases,  hold 
the  agent  for  it  is  with  the  agent  that  he  has  dealt  as 
principal. 

Example  24.  W  sold  flour  to  R.  R  sues  for  breach 
of  warranty  of  merchantability  of  the  flour.  W  defends 
that  he  was  an  agent.  On  the  deal  W  did  not  disclose 
the  name  of  his  principal,  although  he  was  known  to  be 

92.  Thilmany  v.  Iowa  Paper  Bag  Co-  and  William  Daggett, 
108  la.  357. 


86  Law  of  Agency, 

a  broker.     The  transaction  was  oral.     Held,  that  W 
was  liable.^^ 

Sec.  74.  WHEN  AGENT  BOUND  ON  SEALED  IN- 
STRUMENTS BY  THE  FORM  OF  HIS  EXECUTION. 
It  is  a  long  established  rule  that  only  those  who  are  named 
or  described  in  and  sign  a  sealed  instrument  are  bound  thereon. 
If  the  agent  signs  his  own  name  only,  though  he  describe  him- 
self as  agent,  he  will  be  bound  and  the  principal  will  not  be 
bound. 

By  the  law  of  sealed  instruments,  only  those  can  be 
sued  thereon  who  are  parties  thereto.  An  agent  may, 
by  careless  execution  of  a  sealed  instrument,  bind  him- 
self when  he  intended  only  to  bind  his  principal.  We 
may  indicate  here  the  proper  form  one  should  use  and 
that  will  be  about  the  extent  to  which  in  this  discussion 
we  can  go.  The  books  are  full  of  discussions  of  particu- 
lar sets  of  facts  and  courts  are  at  some  variance  upon 
similar  cases.  But  there  are  well  established  forms  of 
execution  which  everyone  should  have  in  mind  when 
he  executes  such  paper. 

First  let  us  note  that  it  is  everywhere  agreed  that  if 
one  merely  describe  himself  as  agent,  that  in  itself  is 
not  sufficient  to  bind  his  principal.  Thus  if  he  signs 
"John  Brown,  Agent,"  or  "William  Smith,  President," 
or  "Harry  Jones,  Trustee,"  etc.,  these  descriptive  words 
are  merely  words  of  description  and  in  no  way  qualify 
the  liability  of  the  party  signing.^^  And  it  is  also  every- 
where agreed  that  if  one  go  further  and  say  "John 
Brown,  Agent  of  Thomas  Anderson,"  the  deed  is  the 
deed  of  John  Brown.  So  one  can  go  into  a  multitude 
of  form.     The  proper  and  safest  mode  of  description 

93.  Wheeler  v.  Reed,  36  111.  81. 

94.  Casco  Nat.  Bk.  v.  Clark,  139  N.  Y.  307. 


American  Commercial  Law.  87 

and  signature  is  as  follows:  to  recite  in  the  body  of  the 
instrument  "Thomas  Anderson,  by  John  Brown,  his 
agent,"  or  the  "Harris  Manufacturing  Company,  by 
William  Smith,  its  President,"  etc.;  and  to  sign  as 
follows:  "Thomas  Anderson  (seal),  by  John  Brown, 
Agent,"  or  "Harris  Manufacturing  Company  (seal),  by 
William  Smith,  President." 

These  forms  have  been  held  good  to  bind  the  principal, 
but  they  are  not  such  good  usage — "A.  B.,  for  C.  D.," 
"for  C.  D.,  A.  B." 

It  is  not  absolutely  essential  that  the  agent's  name 
should  appear.  Yet  it  is  highly  desirable,  in  order  that 
the  evidence  may  be  the  more  surely  preserved  and 
other  reasons  of  convenience.  It  is  therefore  common 
and  the  better  usage  for  the  agent  to  set  forth  that  the 
execution  is  by  him  as  agent.  Even  in  those  states 
where  statutes  have  abolished  the  seal,  the  above  form 
of  signature  is  the  only  safe  one  to  use. 

Sec.  75.  WHEN  AGENT  BOUND  ON  NEGOTIABLE 
PAPER  BY  THE  FORM  OF  HIS  EXECUTION.  Only 
those  described  in  and  who  sign  negotiable  paper  are  bound 
thereupon. 

What  has  been  said  in  respect  to  sealed  instruments 
is  also  true  of  negotiable  paper.  If  an  agent  signs 
negotiable  paper  in  which  only  his  own  name  appears, 
he  is  personally  liable  upon  it.  The  forms  indicated  in 
the  preceding  section  are  subject  to  the  same  considera- 
tions here,  except  that  a  negotiable  instrument  should 
not  be  sealed. 

The  courts  have  been  very  technical  in  this  respect, 
frequently  making  an  agent  liable,  where  quite  ap- 
parent from  the  facts  that  the  agent  never  intended  to 
bind    himself.     The    uniform    negotiable    instruments 


88  Law  of  Agency. 

^ows  a  departure  from  this  rigid  rule,^^  b^^  the  only 
safe  rule  is  to  follow  the  form  approved  in  practice  and 
courts  of  law. 

Example  25.  A  and  B  made  a  note  which  read  "We 
promise  to  pay,"  etc.,  and  signed  it,  "A,  President,"  "B, 
Treasurer."  The  name  of  the  corporation  did  not 
appear  in  the  body  of  the  note,  but  it  was  upon  the 
corporation's  letter  head.  Held:  to  be  the  note  of  A 
and  B,  the  words  President  and  Treasurer,  being  mere 
words  of  description. ^6 

Sec.  76.  WHEN  AGENT  BOUND  ON  OTHER  CON- 
TRACTS BY  THE  FORM  OF  HIS  EXECUTION.  An 
agent  is  bound  if  he  in  terms  charges  himself  on  any  contract, 
but  if  from  all  the  language  used,  it  appears  that  he  did  not 
intend  to  charge  himself,  but  a  principal  therein  named,  he  will 
not  be  personally  liable. 

An  agent  should  be  careful  in  the  case  of  any  con- 
tract, sealed  or  unsealed,  negotiable  or  not,  to  make  it 
appear  that  his  principal  and  not  himself  is  bound. 
Yet  simple  contracts  are  often  hastily  made  and  am- 
biguously worded  and  it  may  be  hard  to  state  what  the 
intention  was.  It  is  clear  that  if  the  agent  uses  only 
his  own  name,  though  he  may  use  the  word  agent,  he 
only  will  be  bound  and  he  cannot  show  that  he  intended 
to  bind  some  one  else  in  order  to  free  himself  (although 
as  we  have  seen  the  other  party  may  hold  the  real 
principal  or  the  agent  at  his  election  where  the  principal 
is  undisclosed).  But  if  the  name  of  the  principal 
appears  in  the  body  of  the  instrument  or  in  the  signa- 
ture and  from  the  entire  contract  it  may  be  gathered  as 
a  reasonable  inference  that  the  agent  intended  to  bind 

95.  See  Law  of  Nego.  Instru.  in  this  series. 

96.  Id. 


American  Commercial  Law.  89 

the  principal,  then  the  agent  can  plead  that  he  is  not 
personally  bound.  No  fast  rule  can  be  laid  down  in 
these  cases  except  that  where  the  agent  uses  approved 
forms  as  heretofore  indicated,  there  can  be  no  question 
that  he  is  not  held,  and  the  further  rule  that  if  he  does 
not  name  the  principal  at  all,  though  he  describes  him- 
self as  agent,  and  even  though  it  appear  that  the  prin- 
cipal was  known  at  the  time  to  the  other  party,  the  other 
party  may  hold  him  personally.^'^ 

Sec.  77.  AGENT  BOUND  WHERE  NO  DEFINITE 
OR  RESPONSIBLE  PRINCIPAL.  If  a  person  represents 
a  large,  unorganized  or  irresponsible  body,  it  will  be  pre- 
sumed, imless  the  contrary  appears,  that  the  representative 
was  given  the  credit. 

If  a  committee  representing  a  large  public  gathering 
as  a  political  party,  an  unincorporated  club,  etc.,  deals 
with  others  for  supplies,  it  is  reasonable  under  the  cir- 
cumstances to  presume  that  it  is  the  committee  to  whom 
the  credit  is  given,  and  such  committee  will  usually  be 
personally  responsible.  Wherever  there  are  situations 
of  that  sort  in  which  the  credit  appears  to  be  given  the 
agent  and  he  must  have  known  it  was  so  given,  he  will 
be  responsible.^^ 

B.    Liability  of  Agent  in  Tort. 

Sec.  78.  AGENT  RESPONSIBLE  FOR  HIS  TORTS. 
An  agent  is  responsible  to  third  persons  for  torts  committed 
by  him,  whether  the  principal  is  liable  or  not  for  them. 

An  agent  is  responsible  for  his  torts  committed  by 
him  whereby  third  persons  are  injured.  In  such  a  case 
the  principal  may  be  also  responsible,  as  we  have  seen. 

97.  Tyron  v.  Clinch,  186  Pac.  (Cal.  Ap.)  1042. 

98.  Clarke  v.  O'Rourke,  111  Mich.  108. 


go  Law  of  Agency.  1 

1 

Thus,  for  his  fraud,  his  negligence,  his  conversion  of  1 

another's  goods,  and  generally  for  his  misfeasance  or  ; 

nonfeasance  of  any  sort,  the  agent  is  liable.    The  third  j 

person  injured  by  such  tort  need  not  elect  whom  he  will  j 

sue.    He  may  sue  the  agent  for  a  tort  committed  by  him  \ 

whether  such  tort  is  such  as  will  render  the  principal  i 

liable  or  not.     If  within  the  scope  of  the  employment,  j 

the  principal  is  liable;  but  the  agent  is  liable  also,  for  i 

he  has  committed  it  though  he  did  it  for  another.^^  ] 

99.    Tippecanoe  Loan  &  T.  Co.  v.  Jester,  180  Ind.  357.  | 

\  \ 


PART  III. 
PROFESSIONAL  AGENTS. 


CHAPTER  11. 

PROFESSIONAL  AGENTS. 
A.    Factors. 

Sec.  79.  DEFINITION  OF  FACTOR.  A  factor,  or  com- 
mission merchant  is  an  agent,  who  receives  goods  from  the 
owners  thereof  to  sell  for  a  commission.  Where  he  sells  upon 
a  guaranty  of  payment  of  debts  arising  in  the  course  of  the 
agency  he  is  called  a  del  credere  factor.  He  has  the  posses- 
f-ion  of  the  goods  that  he  sells,  and  usually  sells  them  in  his 
own  name. 

A  factor,  or  a  commission  merchant,  is  one  who  for 
the  various  owners  who  choose  to  employ  him,  takes 
possession  of  their  goods  and  sells  them  upon  a  com- 
pensation known  as  commission. i^*^  He  differs  from  a 
broker  in  that  he  has  the  possession  of  the  goods  and  has 
broader  powers.  A  broker  brings  buyer  and  seller 
together,  does  not  have  possession  of  the  goods,  and 
usually  does  not  act  in  his  own  name.  We  have  defined, 
heretofore,  a  del  credere  agent.  The  factor,  more  than 
other  agents,  sells  upon  a  del  credere  commission. 

The  term  "factor"  is  also  frequently  used  to  describe 

100.     Turner  v.  Crumpton,  21  N.  Dak.  294. 

91 


92  Law  of  Agency. 

agents  who  are  in  possession  of  goods  to  be  sold,  though 
not  in  that  business  generally,  but  in  its  more  correct 
sense,  it  describes  the  professional  agent. 

Sec.  80.  DUTIES  OF  FACTORS.  A  factor  is  held  to 
the  exercise  of  reasonable  care  in  the  custody  and  sale  of  the 
goods  and  must  follow  instructions. 

(a)  Duty  in  respect  to  care  of  goods.  A  factor  must 
use  that  degree  of  care  for  the  safety  of  the  goods  which 
a  reasonable  man  would  use  in  the  care  of  another's 
goods. 

Example  26.  A  commission  merchant  to  whom  cotton 
was  consigned  allowed  it  to  be  stored  in  a  non-fireproof 
warehouse  to  which  it  had  been  sent  by  mistake  instead 
of  a  fireproof  warehouse  owned  by  him  and  to  which 
he  could  have  removed  it.  The  warehouse  burned 
down  and  the  cotton  was  consumed.  Held,  the  factor 
was  responsible  for  the  loss.i^i 

(b)  Duty  to  insure.  The  factor  need  not  insure  the 
goods  unless  (1)  he  is  so  instructed,  or  (2)  there  is  a 
custom  in  that  mart  to  do  so. 1^2 

(c)  Duty  to  obey  instructions.  The  factor  must  obey 
his  principal's  instructions. 

Example  27.  A  factor  is  instructed  to  "sell  on 
arrival."  He  delays  doing  so  and  loss  ensues  owing  to 
a  drop  in  prices.  Held,  the  factor  is  liable  for  the 
loss.103 

But  he  is  entitled  to  disobey  such  instructions  if  the 
protection  of  the  principal  requires  it  where  it  is  to  be 
assumed  that  the  principal  is  acting  under  a  mistake 
as  to  conditions. 

101.  Vincent  v.  Rather,  31  Tex.  77,  99  Am.  Dec.  517. 

102.  Sturtevant  Co.  v.  Dugan,  106  Md.  587;  Schoenfeld  v. 
Fleischer,  73  111.  404. 

103.  Evans  v.  Root,  7  N.  Y.  186,  57  Am.  Dec.  512. 


American  Commercial  Law.  93 

(d)  Duty  to  sell  for  best  ohtainahle  price.  A  factor 
must  use  reasonable  care  to  get  the  fair  or  market  price 
for  the  goods  sold  by  him  in  the  absence  of  contrary 
instructions.!^  For  duty  in  respect  to  extending  credit, 
see  next  section. 

(e)  Duty  of  good  faith  generally.  The  factor  is  under 
the  same  duty  as  any  other  agent  to  use  the  highest 
good  faith  as  exemplified  in  the  duties  not  to  represent 
two  adversary  masters,  not  to  sell  to  himself,  etc.,  as 
has  been  generally  discussed  elsewhere. 

Sec.  81.  IMPLIED  AUTHORITY  OF  FACTOR  IN 
CASES  BETWEEN  HIMSELF  AND  PRINCIPAL.  The 
factor's  implied  authority  is  discussed  under  the  several  head- 
ings below. 

The  inferences  that  a  factor  may  fairly  make  from  his 
appointment  depend  upon  the  nature  of  his  relationship 
and  customary  practices. 

(a)  Implied  authority  to  barter  or  exchange.  A  factor 
has  no  implied  authority  to  barter  the  goods  for  other 
goods  or  for  anything  other  than  cash  or  proper  credit. ^^^ 

(b)  Implied  authority  to  sell  on  credit.  A  factor  may 
sell  on  credit  unless  instructed  to  the  contrary, i*^  but 
has  no  authority  to  extend  credit  beyond  the  usual  term, 
and  cannot  grant  an  extension  of  the  original  credit. i^'^ 
And  in  extending  credit  must  use  due  diligence  to  ascer- 
tain the  solvency  of  the  party  to  whom  he  sells.i^s  jf 
there  is  a  usage  to  sell  only  for  cash,  he  must  not  sell 
on  credit  unless  so  directed. ^^^ 

104.  Bigelow  V.  Walker,  24  Vt.  149,  58  Am.  Dec.  156. 

105.  Potter  v.  Dennison,  10  111.  390. 

106.  Brown  v.  Funck,  89  Kas.  601. 

107.  Killy  V.  Logan,  2  Mart.  (N.  S.)  196. 

108.  Brown  v.  Funck,  supra. 

109.  Harbert  v.  Neill,  49  Tex.  143. 


94'  Law  of  Agency. 

(c)  Implied  authority  to  deal  in  his  own  name.  A 
factor  may  act  in  his  own  name  and  need  not  disclose 
the  name  of  his  principal.  This  is  one  of  the  character- 
istics of  a  factor  whereby  he  is  distinguished  from  a 
broker. 

Sec.  82.  APPARENT  AUTHORITY  OR  TITLE  OF 
FACTORS  AS  TO  THIRD  PERSONS.  The  rights  of  third 
persons  arising  out  of  the  apparent  ownership  by  the  factor 
or  his  apparent  authority  are  considered  below. 

(a)  Title  oj  purchaser  or  lienor  who  relies  on  factor's 
apparent  ownership.  A  factor  has  possession  of  the 
goods  and  therefore  may  accomplish  their  sale  as  goods 
belonging  to  him,  contrary  to  the  advices  of  the  princi- 
pal, or  may  borrow  money  upon  them.  Has  the  pur- 
chaser or  lienor  a  superior  right  to  the  unknown  owner? 

It  is  a  general  principle  of  the  law  of  personal  property 
that  he  who  deals  with  respect  thereto  does  so  at  his 
own  peril  in  that  one  with  a  superior  title  may  claim 
them.  The  Uniform  Sales  Act  provides  that  only  the 
true  owner  may  convey  title.  True,  he  may  be  estopped 
by  his  conduct  from  asserting  his  title,  but  it  is  every- 
where considered  that  merely  placing  the  possession  of 
property  with  another  does  not  estop  him.  If  he  sends 
them  to  a  factor  with  a  general  power  of  sale,  or  if  the 
factor  complies  with  a  limited  power  of  sale,  the  pur- 
chaser of  course  gets  title,  as  the  actual  authority  has 
been  followed.  But  if  the  authority  has  been  ignored, 
the  general  rule  permits  the  true  owner  to  disregard 
the  sale,  unless  some  exception  based  upon  factorage 
exists.  The  sounder  rule  seems  to  be  that  no  distinction 
exists  in  the  absence  of  legislation  to  that  effect. ^^^ 
If,  however,  there  is  in  addition  to  the  possession  of 

110.     Kaufman  v.  Beasly,  54  Tex.  563. 


American  Commercial  Law.         '  95 

the  goods,  a  clothing  of  the  factor  with  documentary 
indicia  of  ownership  (or  permitting  him  to  so  clothe 
himself),  as  with  bills  of  lading,  warehouse  receipts  and 
the  like,  the  principal  is  estopped  to  deny  the  factor's 
title  as  against  innocent  purchasers  for  value,  no  matter 
how  widely  the  factor  may  have  departed  from  his 
instructions.     (See  Sales  in  this  series.) 

Legislation  {factor's  acts  and  the  like)  has  in  some 
jurisdictions  been  directed  toward  giving  pledgees  and 
purchasers  the  right  to  rely  on  mere  possession  by  a 
factor  where  such  factor  acts  in  his  own  name,  and  the 
true  state  of  the  title  or  of  the  authority  is  unknown. 

(b)  Apparent  authority  of  factor  to  warrant.  A  factor 
has  apparent  power  to  make  the  usual  warranties. 1^1 

(c)  Apparent  authority  of  factor  to  give  credit,  to 
receive  the  price,  to  receive  commercial  paper  in  payment, 
etc. 

The  factor  may  sell  on  usual  terms  of  credit,  receive 
the  purchaser's  commercial  paper  as  evidence  of  the 
liability,  and  may  receive  payment  where  he  sells  in  his 
own  name,  or  sells  for  cash. 

Sec.  83.  FACTOR'S  LIEN.  A  factor  has  a  general  lien 
on  the  goods  which  are  not  sold  and  on  the  price  and  securi- 
ties of  such  as  are,  for  his  just  charges  and  expenses. 

For  his  advances  and  expenditures  a  factor  has  a  lien 
by  the  common  law  and  under  the  statutes.  He  may 
sell  enough  goods  to  satisfy  this  lien.  He  loses  his  lien 
by  voluntarily  parting  with  the  goods.  The  lien  does 
not  exist  unless  he  has  possession  of  the  goods. 112 

111.  See  Sec.  56,  supra. 

112.  Straholm  v.  Union  Stock  Yards  Co.,  43  111.  424. 


96  Law  of  Agency. 

B.    Brokers.113 

Sec.  84.  DEFINITION.  A  broker  is  one  whose  business 
is  to  bring  parties  together  to  contract,  or  in  their  name  to 
contract  for  them,  in  some  line  of  business. 

A  brbker  makes  it  his  business  to  bring  parties  to- 
gether to  contract,  or  to  make  contracts  for  them. 
Thus  a  real  estate  broker  makes  it  his  business  to  find 
buyers  for  sellers  and  sellers  for  buyers  of  real  estate. 
He  may  in  one  case  simply  bring  the  parties  together 
leaving  them  to  make  their  own  contract,  or  in  another 
case  he  may  have  the  larger  authority  to  bind  one  of 
them  by  a  contract  executed  by  himself  as  an  agent. 

A  broker,  unlike  a  factor,  does  not  usually  have  pos- 
session of  the  goods.  His  authority  is  not  so  broad, 
and  his  contracts  are  generally  made  in  the  name  of  his 
principal. 

Sec.  85.  KINDS  OF  BROKERS.  A  broker  usually  chooses 
some  one  line  of  trade  in  which  to  carry  on  his  business,  and 
he  is  described  in  reference  to  that  trade. 

F  There  are  many  sorts  of  brokers.     The  common  sorts 
are  here  briefly  discussed. 

(1)  Real  Estate  Brokers.  A  real  estate  broker  brings 
buyers  and  sellers  of  real  estate  together  or  makes 
contracts  for  them.  This  is  a  very  numerous  class,  and 
their  general  activities  are  commonly  understood.  A 
real  estate  broker  has  no  authority  to  contract  for  the 
purchase  or  sale  of  real  estate  or  to  buy  or  sell  real 
estate,  except  as  this  authority  is  specially  conferred. 
Often  he  does  not  execute  the  contract  himself.  He 
writes  up  a  contract  and  has  the  owner  sign  it  and  then 
takes  it  to  the  buyer  for  his  signature,  or  vice  versa. 

113.     For  compensation  of  broker  see  Sec.  27,  supra. 


American  Commercial  Law.  97 

So  when  a  deed  is  given,  the  broker's  name  may  not  at 
all  appear.  Yet  in  many  cases,  a  power  of  attorney  is 
conferred  on  the  broker  to  sign  contracts  and  execute 
deeds. 

Real  estate  brokers  often  collect  rents,  procure  insur- 
ance, and  otherwise  concern  themselves  with  the  manage- 
ment of  real  estate. 

(2)  Insurance  Brokers.  An  insurance  broker  is  one 
who  makes  it  his  business  to  secure  insurance,  for  those 
who  employ  him,  from  various  companies.  He  differs 
from  an  insurance  agent  who  works  for  and  represents  a 
certain,  or  perhaps  several,  insurance  companies,  while 
the  broker  is  the  agent  of  the  insured  rather  than  of  the 
insurer.  He  does  not  have  as  broad  authority  as  a 
general  insurance  agent,  who  may  bind  the  company. 
A  policy  is  secured  by  him  from  the  company,  rather 
than  executed  by  him  for  the  company.  Consequently 
there  is  not  usually  any  act  which  he  can  do  in  signing 
policies,  waiving  or  inserting  provisions  therein  which 
can  bind  the  company,  although  a  general  insurance 
agent  would  have  such  powers. 

(3)  Merchandise  Brokers.  A  merchandise  broker  is 
one  who  represents  buyers  and  sellers  of  merchandise 
without  having  possession  of  it.  He  usually  deals  in 
some  one  line  and  is  described  and  known  in  reference 
to  that  line,  as  for  instance,  a  cotton  broker,  a  sugar 
broker,  a  tea  and  coffee  broker,  a  grain  broker.  He 
does  not  have  the  authority  of  a  factor  from  whom  he 
essentially  differs  in  not  having  the  possession  of  the 
goods. 

(4)  Stock  Brokers.  A  stock  broker  buys  and  sells 
stock  of  corporations  for  customers.  He  often  differs 
from  the  other  kinds  of  brokers  and  comes  to  have 
more  the  character  of  a  factor.  He  often  has  possession 
of  the  stock,  and  buys  and  sells  in  his  own  name.     A 

Bays— 7 


98  Law  of  Agency, 

common  practice  is  for  him  to  sell  stock  on  margin. 
In  that  case  the  buyer  becomes  the  owner  of  the  stock, 
which  is  bought  by  money  loaned  by  him  to  the  customer 
and  the  customer's  own  money  in  proportions  usually 
of  about  90  per  cent  and  10  per  cent.  The  amount  put 
up  by  the  customer  is  said  to  be  put  up  on  margin. 

Sec.  86.  THE  AUTHORITY  OF  THE  BROKER.  The 
broker  usually  acts  in  each  instance  upon  a  special  authority 
and  has  very  little  implied  authority  to  bind  his  principal. 

A  broker  does  not  have  possession  of  the  subject 
matter  of  the  contract  as  in  the  case  of  a  factor.  His 
authority  is  specially  conferred  and  therefore  limited. 
For  instance,  if  one  deals  with  a  real  estate  broker  he 
cannot  usually  assume  that  the  broker's  authority  is 
extensive.  He  must  look  to  the  actual  authority  that 
has  been  expressly  conferred.  Thus  C  cannot  assume 
that  A,  a  real  estate  broker,  has  any  authority  to  sell 
B's  land.  He  may  take  A's  word  for  it,  but  he  is  not 
really  protected  except  upon  B's  word  to  that  effect, 
which  he  should  have  in  writing.  Many  times  indeed  a 
broker  has  no  actual  authority  but  simply  brings  parties 
together,  whereupon  they  arrive  at  their  own  terms. 

Where  a  broker  has  actual  authority,  it  is  usually  to 
be  construed  in  the  light  of  customs  and  usages  which 
are  of  universal  use  in  that  locality  and  trade.  If  one 
goes  by  means  of  his  broker  into  a  market  or  exchange 
he  usually  must  be  taken  to  have  instructed  the  broker 
to  proceed  in  respect  to  the  well  known  customs  and 
rules  that  prevail  there,  and  he  will  be  bound  by  these. 
This  is  perhaps  more  true  of  stock  brokers  than  of  other 
kinds,  because  it  is  their  business  which  is  so  largely 
governed  by  customs,  usages  and  rules. 

A  broker  usually  has  no  authority  to  receive  pay- 
ment, or  to  extend  credit,  as  the  factor  may.     In  any 


American  Commercial  Law.  99 

particular  case,  however,  this  authority  might  appear 
either  expressly  or  from  the  circumstances. 

C.     Auctioneers. 

Sec.  87.  AUCTIONEER  DEFINED.  An  auctioneer  is 
an  agent  who  makes  it  his  business  to  represent  owners  of 
property  in  selling  the  same  to  the  highest  and  best  bidder 
among  those  who  attend  the  sale. 

Property  is  said  to  be  auctioned  when  it  is  offered  to 
the  one  who  shall  by  his  bid  make  himself  the  most 
desirable  purchaser.  Usually  this  would  simply  mean 
that  he  should  bid  more  than  anyone  else.  But  if  the 
sale  was  upon  credit,  it  might  also  mean  that  he  should 
qualify  as  one  of  fair  credit.  Customarily,  therefore,  it 
is  announced  that  sales  will  be  to  the  "highest  and  best 
bidder." 

An  auctioneer  pursues  a  public  calling.  He  makes  it 
his  business  to  represent  any  one  who  will  employ  him 
to  sell  the  line  of  goods  he  handles,  or  perhaps  any  sort 
of  property,  whatever. 

Auctions  are  usually  public.  An  auctioneer  is  often 
defined  as  one  who  sells  at  public  sale.  Yet  he  might 
sell  at  private  sale  where  there  were  two  or  more  of  a 
selected  group  who  desired  to  buy.  In  such  a  case  he 
would  seem  still  to  be  pursuing  the  calling  of  an  auc- 
tioneer. But  his  business  as  a  whole  is  a  public  one. 
For  this  reason  it  is  often  required  that  he  secure  a 
license  before  he  shall  be  entitled  to  act  as  auctioneer. 

An  auctioneer  is  agent  of  the  seller,  except  in  the 
matter  of  making  book  entries,  etc.,  in  which  case  he 
is  agent  for  both.  That  is,  he  is  the  seller's  agent  and 
he  is  not  the  buyer's  agent  except  for  clerical  purposes. 
This  might  be  important  from  the  standpoint  of  the 
statute  of  frauds  requiring  a  signed  memorandum  in 


loo  Law  of  Agency. 

writing  in  order  to  make  a  sale  enforceable,  which  is  in 
force  in  many  states.  The  entry  of  the  sale  in  the  books 
with  the  buyer's  and  seller's  name  would  be  a  memoran- 
dum made  and  signed  by  the  buyer  and  seller  because 
made  by  their  agent. 

Sec.  88.  THE  AUCTIONEER'S  AUTHORITY.  An 
auctioneer  has  no  authority  to  sell  except  upon  the  terms 
given  by  the  owner.  He  cannot  warrant  except  with  actual 
authority. 

The  terms  upon  which  the  sale  at  auction  is  to  be 
made  are  openly  stated  by  the  owner  or  by  the  auc- 
tioneer with  the  owner's  sanction.  The  auctioneer 
cannot  transcend  his  authority  thus  given. 

An  auctioneer  has  no  authority  to  warrant  unless  the 
owner  actually  gives  him  such  authority. 

Sec.  89.  WHEN  THE  SALE  BY  AUCTION  TAKES 
PLACE.  A  sale  by  auction  is  complete  when  the  auctioneer 
signifies  his  acceptance  of  the  bid.  Unless  a  sale  is  "without 
reserve"  (and  even  then  in  some  jurisdictions),  he  may  refuse 
any  bid  and  withdraw  the  article  from  sale. 

If  an  auction  is  not  advertised  to  be  without  reserve, 
an  auctioneer  may  withdraw  the  property  from  the  sale 
at  any  time;  for  there  is  no  contract  made  until  the 
auctioneer  accepts  the  bid.  A,  as  auctioneer  puts  up 
a  horse  for  sale,  B  offers  $50,  C,  $55,  and  D,  $60,  for  it; 
but  until  A  signifies  his  acceptance  to  the  bid  no  con- 
tract is  complete;  no  sale  or  contract  of  sale  has  been 
made.  Consequently,  neither  B,  C,  nor  D,  may  com- 
plain in  such  a  case.  However,  the  owner  of  the  prop- 
erty might  have  just  cause  for  holding  A  liable  for  re- 
fusing a  bid  he  might  have  accepted  and  thereby  losing 
the  sale.     But  in  some  states  (and  the  Uniform  Sales 


American  Commercial  Law.  ioi 

Act  so  provides)  if  an  auction  is  advertised  to  be  "with- 
out reserve,"  the  article  cannot  be  drawn  from  sale 
after  an  offer  has  been  made  which  comes  within  the 
terms  of  sale. 

Sec.  90.  "BY  BIDDING."  This  consists  in  secret  bidding 
by  the  owner  or  his  agent  in  order  to  puff  the  price.  It  is 
illegal  and  a  sale  so  induced  is  voidable.  But  an  owner  may 
openly  bid  for  this  only  amounts  to  withdrawing  the  former 
bid,  unless  the  sale  was  without  reserve  in  those  states  where 
auctions  without  reserve  prevent  withdrawal. 

Secret  "by  bidding"  is  fraudulent.  If  one  discovers 
that  his  bid  was  induced  because  of  a  bid  made  appar- 
ently by  a  would-be  buyer,  but  in  reality  by  the  owner 
or  his  agents,  he  may  have  the  sale  set  aside.  But  an 
owner  can  always  bid  openly  unless  restrained  by  the 
announcement  that  the  sale  is  without  reserve,  as  dis- 
cussed in  the  last  section. 


PART  IV. 
TERMINATION   OF  RELATIONSHIP. 


,  CHAPTER  12. 
TERMINATION  BY  ACT  OF  PARTIES. 

Sec.  91.  BY  TERMS  OF  ORIGINAL  AGREEMENT. 
Where  the  authority  is  stated  to  be  for  a  limited  period,  the 
passing  of  the  term  terminates  the  agency. 

If  one  is  employed  as  agent  for  a  certain  time,  the 
passing  of  that  time  terminates  his  authority.  The 
parties  may  of  course  stipulate  for  a  continuance  and 
this  might  be  shown  by  circumstances. 

Sec.  92.  BY  ACCOMPLISHMENT  OF  OBJECT.  If 
the  object  of  the  agency  is  accomplished,  the  agency  ceases. 

If  one  is  employed  to  do  a  certain  act,  as  to  sell  a 
piece  of  real  estate,  his  authority  then  ceases  when  the 
act  is  done. 

Sec.  93.    REVOCATION    BY    ACT    OF    PRINCIPAL. 

Unless  an  agency  is  coupled  with  an  interest  in  the  agent  it 
may  be  revoked  at  any  time  by  the  principal,  though  he  may 
have  no  right  to  revoke. 

Agencies  may  be  divided  into  those  which  are  revoc- 
able and  those  which  are  irrevocable.  In  considering 
whether  an  agency  is  revocable,  we  do  not  consider  the 

102 


American  Commercial  Law.  103 

right  of  revocation ;  we  consider  only  the  power,  which  is 
quite  without  respect  to  the  right  to  revoke.  I  may 
revoke  an  agency  whether  I  have  any  right  to  do  so  or  not, 
just  the  same  as  I  may  discharge  an  employee,  regard- 
less of  my  right  to  do  so.  In  such  a  case  I  may  have 
to  pay  damages,  but  I  cannot  be  compelled  against  my 
will  to  keep  any  certain  person  in  my  employ.  But  all 
agencies  are  not  revocable.  If  the  agent  has  an  interest 
in  the  agency  so  that  the  agency  must  continue  in  order 
to  protect  that  interest,  the  principal  cannot  revoke 
it.  What  constitutes  an  irrevocable  agency  is  further 
considered  in  the  following  section. 

Sec.  94.  IRREVOCABLE  AGENCIES.  If  an  agency  is 
coupled  with  an  interest  it  cannot  be  revoked  by  the  principal. 
It  is  coupled  with  an  interest  only  when  the  agent  has  some 
interest  or  estate  in  the  subject  matter  of  the  agency. 

An  agency  is  irrevocable  when  the  agent  has  an 
estate  or  interest  in  the  subject  matter  of  the  agency. 
His  interest  in  the  agency  itself,  no  matter  how  exten- 
sive it  may  be,  is  not  sufficient  to  prevent  even  its 
wrongful  termination. 11^  In  that  event  the  agent  is  in 
the  same  position  as  any  other  party  to  a  contract 
which  the  other  party  has  broken  and  may  sue  for  his 
damages.  But  if  besides  that  interest,  he  has  an  interest 
in  the  thing  itself,  his  agency  can  no  more  be  revoked 
than  any  property  can  be  taken  from  a  man  without 
his  consent.  Thus  if  the  agency  must  continue  in  order 
to  reimburse  the  agent  for  expenditures  made  by  him, 
or  loans  made  by  him  to  the  principal  or  others,  then  in 
case  the  agency  has  been  granted  for  the  purpose  of 
securing  the  lender,  the  agency  is  irrevocable.  Thus  if  A 
should  loan  P  $1,000,  and  a  security  for  the  loan  should 

114.     Chambers  v.  Seay,  73  Ala.  372. 


I04  Law  of  Agency. 

be  given  by  P  the  authority  to  collect  certain  debts,  P 
could  not  deprive  A  of  this  security  by  revoking  the 
agency.  But  if  P  should  employ  A  to  sell  land  on  com- 
mission, he  could  revoke  the  authority  at  any  time,  even 
though  thereby  depriving  A  of  his  fees,  for  A  could  have 
his  damages  and  this  right  is  as  great  a  protection  to 
him  as  though  the  agency  had  continued. 

If  an  agency  is  stated  to  be  "irrevocable,"  it  may 
nevertheless  be  revoked,  unless  coupled  with  an  in- 
terest.^^^  But  of  course  if  there  is  no  right  to  revoke  it, 
its  revocation  will  give  rise  to  an  action  for  damages. 

Sec.  95.  WHEN  PRINCIPAL  HAS  RIGHT  TO  RE- 
VOKE. A  principal  has  the  right  as  well  as  the  power  to 
revoke  whenever  the  agency  is  for  an  indefinite  period  or  with- 
out consideration,  or  where  the  agent  has  on  his  part  broken 
his  contract,  or  where  it  is  in  terms  revocable. 

If  the  agency  is  for  an  indefinite  period  it  may  be 
brought  to  a  close  at  any  time  by  either  principal  or 
agent;  so  even  if  a  time  is  definitely  stated,  still  if  there 
is  no  consideration  for  its  continuance  it  could  be  re- 
voked at  any  time.  Thus  if  the  agent  did  not  promise 
and  so  could  not  be  held  to  do  anything  during  such 
term,  but  had  in  substance  or  in  terms  agreed  to  act  as 
he  might  see  fit  or  desired,  there  would  not  be  any  con- 
tract for  any  definite  period  though  the  authority  might 
so  state.  Sometimes  an  authority  is  given  upon  con- 
dition that  it  may  be  terminated  at  any  time,  or  upon 
the  happening  of  a  certain  contingency,  or  upon  a  certain 
notice  to  be  given. 

Example  28.  A  manufacturer  of  motor  cars  granted  to 
H  exclusive  right  to  sell  cars  in  a  specified  territory,  but 
was  not  for  any  definite  term  and  provided  that  the 

115.     Todd  V.  Superior  Court,  184  Pac.  (Cal.)  684. 


American  Commercial  Law.  105 

manufacturer  could  terminate  whenever  he  believed  H 
was  not  diligent  in  selling  cars.  Held,  such  agency  was 
terminable  at  will.ii^ 

If  an  agent  turns  out  to  have  less  competency  than 
the  principal  was  justified  in  supposing  he  had,  the 
principal  may  revoke  the  agency.  Professional  agents 
especially  hold  themselves  out  as  having  a  certain  degree 
of  skill,  and  if  they  are  wanting  in  that  respect  they 
need  not  be  retained. 

If  the  agent  breaks  his  contract  in  any  material  way 
the  principal  may  thereupon  terminate  the  agency,  or 
waiving  the  breach  he  may  continue  the  agent  in  the 
agency.  After  he  has  once  waived  the  breach,  he  could 
not  afterwards  rely  on  it  as  an  excuse  for  terminating 
the  agency. 

Where  an  agent  is  employed  for  a  specified  period, 
but  it  is  provided  that  the  principal  may  discharge  him 
if  the  agent's  services  become  unsatisfactory,  it  is  gen- 
erally held  that  the  dissatisfaction  expressed  must  be 
genuine  and  in  good  faith,  not  a  mere  excuse  for  dis- 
charge.— (Atlanta  Stove  Works  v.  Hamilton,  83  Miss. 
704). 

Sec.  96.  TERMINATION  BY  AGENT.  An  agent  has 
the  power,  whether  or  not  he  have  the  right,  to  termmate  the 
agency  at  any  time.  His  right  to  terminate  depends  upon  the 
same  reasoning  that  governs  the  principal's  right  to  terminate. 

An  agent  has  always  the  power  to  terminate  the 
agency.  But  he  may  not  have  the  right.  That  depends 
upon  his  contract  and  upon  his  principal's  breach 
thereof.  Agencies  at  will,  or  for  an  indefinite  period,  or 
for  a  definite  period  but  without  consideration,  could 
be  terminated  by  the  agent  at  any  time,  just  as  they 
can  by  the  principal. 

116.    Huffman  v-  Page-Detroit  Co.,  262  F.  116. 


io6  Law  of  Agency. 

Sec.  97.  NOTICE  OF  REVOCATION  TO  AGENT. 
The  principal  must  notify  the  agent  when  he  revokes  and  usu- 
ally the  revocation  consists  in  such  notice. 

An  agent  is  entitled  to  notice  when  his  authority  is 
revoked.  Usually  the  notice  itself  would  constitute  the 
revocation. 

Sec.  98.  NOTICE  TO  THIRD  PERSONS.  Where  the 
agency  is  general,  revocation  does  not  usually  operate  as  to 
third  persons  except  upon  notice  to  them,  but  no  notice  is  usu- 
ally necessary  in  special  agencies,  except  where  negotiations 
are  actually  being  entered  into  thereunder. 

Third  persons  who  would  under  the  circumstances  be 
justified  in  dealing  with  an  agent  under  the  belief  that 
his  agency  continued  to  exist  are  entitled  to  notice. 
Notice  might  be  given  them  by  the  circumstances,  as 
where  an  agent  has  been  put  out  of  possession  of  the 
office  and  others  are  in  his  place.  Notice  would  seldom 
be  required  except  in  general  agencies. 


CHAPTER  13. 
REVOCATION  BY  OPERATION  OF  LAW. 

Sec.  99.  BY  DEATH  OF  PRINCIPAL.  The  death  of 
the  principal  terminates  the  agency,  except  when  the  agency 
is  coupled  with  an  interest.  This  is  true  though  the  death  is 
unknown  when  the  contract  was  attempted  to  be  made. 

Agency,  as  we  have  seen,  is  a  personal  relation  and 
is  entered  into  subject  to  the  continued  existence  of  the 
principal  and  agent.  If  the  principal  dies,  the  agency 
is  thereby  terminated.  The  estate  or  the  heirs  cannot 
claim  a  continuance  of  the  agent's  services. 

If,  however,  the  agency  is  coupled  with  an  interest, 
as  we  have  seen,  it  is  irrevocable.  There  death  of  the 
principal  does  not  terminate  it  for  the  same  reasons  that 
protect  the  agent  in  an  attempted  revocation  by  the 
principal. 

Sec.  100.  BY  DEATH  OF  AGENT.  The  death  of  the 
agent  terminates  the  agency  except  where  the  agency  is 
coupled  with  an  interest. 

If  the  agent  dies,  the  agency  is  terminated.  The 
personal  representative  or  the  heirs  cannot  step  in  his 
place.  If  the  agency  is  coupled  with  an  interest,  it 
may  be  carried  out  by  the  personal  representatives  for 
the  benefit  of  the  estate. 

107 


io8  Law  of  Agency. 

Sec.  101.  BY  INSANITY  OF  ONE  OF  THE  PARTIES. 
Insanity  of  either  principal  or  agent  terminates  the  agency, 
except  when  coupled  with  an  interest. 

The  insanity  of  one  of  the  parties  removes  his  qualifi- 
cations to  act  as  principal  or  agent,  except  when  coupled 
with  an  interest. 

Sec.  102.  BY  BANKRUPTCY.  Bankruptcy  will  not  in 
itself  necessarily  terminate  an  agency.  If  it  so  operates  upon 
the  subject  matter  thereof  that  it  removes  the  purpose  of  the 
agency,  the  agency  will  be  terminated. 

Bankruptcy  usually  does  not  affect  one's  merely 
executory  contracts.  It  does  not  necessarily  affect  the 
relation  of  principal  and  agent,  especially  if  the  bank- 
ruptcy be  that  of  the  agent. 

Sec.  103.  BY  WAR.  War  between  the  country  of  the 
principal  and  of  the  agent  operates  to  dissolve  the  agency  in 
so  far  as  communication  between  principal  and  agent  is  essen- 
tial. 

Where  the  countries  of  the  principal  and  agent  are 
engaged  in  war,  the  effect  of  the  war,  in  the  absence  of 
any  special  legislation,  depends  upon  the  nature  of  the 
agency.  An  agency  in  which  the  duty  of  the  agent  is 
to  look  after  an  alien  principal's  property  is  not  dis- 
solved by  the  war,  but  there  can  be  no  communication 
or  transmission  of  funds. 1^7 

117.     See  note  L.  R.  A.  1917  C,  p.  667. 


APPENDIX  A. 
FORMS. 


APPENDIX  A.  ■] 

FORMS.  i 

i 

(It  is  not  believed  desirable  to  furnish  forms  in  a  book  of  this 

character,  except   forms  commonly  in  use,  and   for  purpose  of  .' 

illustration.    A  form  of  power  of  attorney  is  supplied  below.)  ^ 

1.  Power  of  Attorney. 

KNOW  ALL  MEN  BY  THESE  PRESENTS,  That  I,  James  ! 

X.   Showalter  of  the  City  of  Chicago,  County  of  Cook,  in  the  • 

State  of  Illinois,  have  made,  constituted  and  appointed,  and  By  i 

These  Presents  do  make,  constitute  and  appoint  Frank  O.  Hazard,  j 
of  the  City  of  Peoria,  County  of  Peoria  and  State  of  Illinois,  my 

true  and  lawful   Attorney   for  me  and   in  my  name,  place  and  i 

stead,  to  grant,  bargain,  sell,  release,  convey,  transfer,  exchange,  , 

mortgage    and    lease    any    and    all    lands,    tenements,    heredita-  ; 

ments,  real  and  personal  property,  which  I  may  own  or  hereafter  ' 

acquire,  possess  or  be  to  any  extent  entitled  to  or  interested  in,  | 

upon  such  terms  and  conditions  and  under  such  covenants  as  he  ' 

shall  see  fit  and  for  such  consideration  as  he  shall  deem  advis-  i 

able ;  and  for  me  and  in  my  name  to  sign,  seal,  execute,  acknowl-  \ 

edge  and  deliver  all  such  deeds,  leases,  bills  of  sale,  and  assign-  ■ 

ments,  indentures,  agreements,  mortgages  and  deeds  of  trusts  or  j 
any  other   instrument  necessary  or   desirable  to  accomplish  any 
of  the  purposes  for  which  this  power  of  attorney  is  given,  giving 

and   granting   unto    Frank   O.    Hazard,    my    said    Attorney,    full  '-■ 

power  and  authority  to  do  and  perform  all   and  every  act  and  ■: 

thing    whatsoever,    requisite    and    necessary    to    be    done    in   and  ; 

about  the  premises,   as   fully,  to  all   intents  and  purposes,   as   I  j 

might  or  could  do  if  personally  present  at  the  doing  thereof,  with  ] 

full  power  of  substitution  and  revocation,  hereby  ratifying  and  ^ 

confirming  all  that  my  said  Attorney  or  his  substitute  shall  law-  j 

fully  do  or  cause  to  be  done  by  virtue  hereof.  j 

III  I 


112  Forms. 

In  Testimony  Whereof,  I  have  hereunto  set  my  hand  and  seal 
this  6th  day  of  January,  1921. 
Signed,    Sealed   and   De- 
livered  in   Presence  of 
James  R.  Smith, 
William  Odell. 

James  X.  Showalter        (Seal) 
County  of  Cook.     7 
State  of  Illinois,   5     '  •  . 

I,  Herbert  Jones,  a  Notary  Public,  in  and 
for,  and  residing  in  the  said  County  in  the  State 
aforesaid.  Do  Hereby  Certify,  that  James  X. 
Showalter,  personally  known  to  me  to  be  the 
same  person  whose  name  is  subscribed  to  the 
foregoing  instrument,  appeared  before  me  this 
day  in  person,  and  acknowledged  that  he  signed, 
sealed  and  delivered  the  said  Instrument  as  his 
free  and  voluntary  act,  for  the  uses  and  purposes 
therein  set  forth. 

Given  under  my  hand  and  notarial  seal,  the 
6th  day  of  January,  A.  D.  1921. 
(Notarial  Seal)  Herbert  Jones. 

Notary  Public. 

(Note:  The  above  is  a  very  general  power  of  attorney  giving 
authority  to  dispose  of  or  contract  in  reference  to  the  lands  of 
the  principal.  A  power  of  attorney  might  only  cover  the  very 
thing  expected  to  be  done,  as  to  sell  certain  land,  described  in 
the  power  of  attorney,  at  certain  pricec  or  upon  certain  terms 
therein  named.  A  power  of  attorney  giving  authority  to  sell  or 
dispose  of  real  estate  is,  in  case  of  its  use,  recorded  in  the  same 
manner  as  deeds  are  recorded.  But  powers  of  attorney  which 
are  used  as  the  evidence  of  one's  authority  to  do  things  which  are 
not  matters  of  record,  are  themselves,  of  course,  not  recorded.) 


APPENDIX  B. 
QUESTIONS  AND  PROBLEMS. 


APPENDIX  B. 
QUESTIONS  AND  PROBLEMS. 

CHAPTER  ONE. 

1.  Define  the  terms  "agent"  and  "servant" ;  show  in  what  way 
an  agent  is  the  same  as  a  servant  and  in  what  respects  the  two 
differ,  and  how  an  agent  or  servant  differs  from  an  independent 
contractor. 

2.  A  contracts  with  B,  a  building  contractor,  for  the  erection  of 
a  garage  on  A's  land,  with  the  understanding  that  B  shall  furnish 
all  necessary  material  and  labor.  B  employs,  among  others,  C,  a 
painter,  and  tells  him  to  get  all  the  required  paint.  C  does  so  and 
charges  the  paint  to  A.  Can  the  seller  of  the  paint  hold  A  on  the 
theory  of  agency?    Is  B  A's  agent  for  any  purpose? 

3.  What  is  the  meaning  of  the  maxims  "qui  facit  per  alium, 
qui  facit  per  se"  and  "respondeat  superior"* 

4.  A  hotel  Co.  owning  a  number  of  cabs  upon  which  its  name 
is  painted  enters  into  contracts  called  "leases"  with  drivers  whereby 
the  cab  drivers  shall  pay  a  stipulated  consideration  per  day  for  the 
use  of  the  cabs.  The  cab  drivers  agree  to  render  service  to  the 
hotel  guests,  and  are  entitled  to  keep  all  fares  collected  by  them. 
M  while  riding  a  bicycle  was  run  down  and  injured  by  one  of  the 
cabs  and  the  accident  also  causes  injury  to  a  passenger,  who  is  being 
driven  to  the  hotel.  M  and  the  passenger  sue  the  Hotel  Co.  Can 
either  recover?  (McColligan  R.  Co.,  214  Pa.  229,  6  L.  R.  A.  N.  S. 
544  and  note.) 

CHAPTER     TWO. 

5.  A  employs  M.  a  minor,  aged  ten  years,  to  buy  some  goods 
for  him  of  B  upon  A's  credit.  The  boy  buys  the  goods  and  A  is  charged 
with  the  cost.  On  the  way  back  M  engages  in  play  and  forgets  the 
goods,  leaving  them  beside  the  road,  where  they  are  stolen.  In  a  suit 
by  B  against  A  for  the  price  of  the  goods  A  defends  that  M  had 
no  capacity  to  act  for  him.     How  should  the  case  be  decided?    Why? 

6.  May  a  minor  appoint  an  agent? 

115 


Ii6  Questions  and  Problems. 

7.  What  is  the  rule  as  to  the  appointment  of  an  agent  for  pur- 
poses that  are  illegal  or  opposed  to  public  policy? 

CHAPTER  THREE. 

8.  P  appoints  A  his  agent  with  power  to  make  a  deed  to  P's 
real  estate,  Blackacre,  and  to  enter  into  a  contract  for  the  sale  of 
Whiteacre.  A's  authority  is  in  writing  but  not  under  seal.  Under 
the  law  a  deed  to  real  estate  requires  a  seal,  but  a  contract  to  make  a 
deed  does  not  require  a  seal.  A  puts  a  seal  on  both  instruments. 
P  seeking  to  get  out  of  both  acts  charges  that  A  had  no  sufficient 
authority  to  represent  him.     Will  the  deed  or  the  contract  stand? 

9.  Under  the  statute  of  frauds  requiring  contracts  to  be  proved 
by  written  memorandum,  aaay  an  agent  who  is  duly  authorized  to 
make  a  contract  covered  by  the  statute  of  frauds,  make  a  sufficient 
memorandum  to  bind  his  principal  where  the  principal  ^ays  nothing 
about  it? 

10.  What  is  the  authority  of  a  wife  to  bind  her  husband? 

11.  What  is  the  authority  of  a  child  to  bind  his  parent? 

CHAPTER  FOUR. 

12.  Define  ratification. 

13.  A  of  the  firm  of  A  and  B,  bought  goods  in  his  own  name  and 
for  his  own  personal  purposes,  as  the  seller  knew.  Not  having  the 
expected  use  for  such  goods  he  sold  them  to  the  firm.  The  seller  learn- 
ing of  this  sues  A  and  B  for  the  price  and  B  claims  that  he  cannot  be 
held.  The  seller  claims  that  B  ratified  A's  act.  Is  B  liable?  (Eraser 
V.  Sweet,  13  Manitoba  L.  Rep.  147,  2  Brit.  Rul.  Cas.  254.) 

14.  Does  a  principal  ratify  the  agent's  act  by  accepting  the 
benefits  thereof  where  he  does  not  know  all  of  the  facts,  but  could 
ascertain  them  by  diligent  inquiry?  Do  you  make  any  distinctions 
here? 

15.  A  college  authorizes  its  President  to  borrow  money.  In  order 
to  accomplish  the  loan  he  pledges  collateral  belonging  to  the  cor- 
poration. The  corporation  knowing  what  he  has  done  accepts  the 
money,  but  brings  suit  to  recover  the  pledged  property  as  having 
been  pledged  without  authority.     Will  it  prevail?    Why? 

16.  An  agent  makes  a  contract  in  the  name  of  his  principal,  by 
whom  he  represents  he  is  authorized.  The  third  person  discovers  the 
agent  has  no  authority  and  seeks  to  withdraw,  but  the  principal 
replies  that  he  authorizes  the  act.     Can  the  withdrawal  be  made? 

17.  Is  silence   (no  benefits  being  received)   in  itself  ratification? 


Questions  and  Problems.  117 

chapter  five. 

18.  A  authorizes  B,  a  real  estate  broker,  to  sell  his  property  on 
certain  specified  terms.  B  procures  C,  but  A  refuses  to  deal  with  C. 
On  what  conditions,  if  any,  can  B  compel  A  to  pay  him  a  commission? 

19.  A  authorizes  B,  a  real  estate  broker,  to  sell  his  property 
on  certain  specified  terms.  B  procures  C,  with  whom  A  makes  a  con- 
tract of  sale.  C  is,  however,  financially  irresponsible  and  fnils  to  per- 
form his  contract.     Is  B  entitled  to  his  commissions? 

20.  A  advises  B,  a  broker,  that  he  wants  to  sell  his  home  and 
directs  B  to  procure  him  a  buyer.  No  terms  are,  however,  proposed, 
as  A  wants  to  bargain  with  the  prospective  buyers.  B  procures  C, 
who  offers  A  a  good  price,  and  A  refuses  to  sell  to  him.  C  is  ready, 
willing  and  able  to  buy  at  a  good  market  price.  Is  B  entitled  to  his 
commission  ? 

21.  Suppose  in  the  case  last  citpd  A  had  accepted  C  and  made 
terms  with  him  and  entered  into  a  contract.  Would  B  be  entitled  to 
his  commission? 

22.  P  employs  A  for  one  year.  At  the  end  of  six  months  P 
discharges  A,  without  proper  cause,  owing  A  one  month's  salary.  A 
sues  for  the  salary  due  and  recovers.  Afterwards  he  sues  for  breach 
of  contract.     Can  he  recover? 

23.  An  agent  is  employed  for  a  year  at  $100.00  per  month,  paya- 
ble monthly.  He  quits  in  the  middle  of  a  month.  Is  he  entitled  to 
recover  for  his  services  during  previous  months,  and  during  the  half 
month  ? 

CHAPTER  SIX. 

24.  W  employed  J  to  sell  Ws  property  for  $3,000,  reserving  the 
right  to  sell  himself  if  he  found  a  purchaser.  W  entered  into  negotia- 
tions with  one  H  for  the  sale  of  the  property  for  $3,300.  but  H  learned 
that  the  property  was  offered  for  $3,000  by  .1,  whereupon  he  dropped 
his  negotiations  with  W  and  dealt  with  J.  J  by  a  roundabout  method 
sold  to  H.  W  now  sues  for  $100  commission  retained  by  J  on  the 
ground  of  breach  of  faith.  Can  W  recover?  (James  v.  Williams 
(Nebr.),  20  L.  R.  A.  207.) 

25.  A  employed  B  to  purchase  property  for  her  for  $5,000. 
B  negotiated  with  the  owner  and  found  he  could  purchase  for  $4,500. 
B  thereupon  bought  it  himself.  A  learning  of  this  brings  suit,  ten- 
dering $4,500.  B  claims  that  he  is  entitled  to  $5,000  or  at  least 
$4,500  and  interest  thereon  during  the  time  of  the  investment.  What 
are  his  rights?     (Boswell  v.  Cunningham  (Fla.  ).  21  L.  R.  A.  54.) 

26.  A  consigned  butter  to  B,  a  commission  merchant,   for  sale 


ii8  Questions  and  Problems. 


by  B.  B  insured  the  butter.  A  fire  occurred,  doing  some  damage, 
and  the  arbitrators  allowed  B  a  sum  for  damages  and  allowed  B  to 
sell  the  butter  for  what  he  could  get.  B  sold  the  butter  and  rendered 
an  account  to  A,  charging  A  with  commissions  and  insurance  premium, 
and  not  mentioning  the  Are.  A  learning  of  the  Are  sues  to  get  back 
the  commission  and  to  be  allowed  the  insurance  money.  Can  he 
prevail?     (Fish  v.  Seeberger,  154  111.  30.) 

27.  M  desiring  to  buy  land,  and  knowing  that  A  was  acting  as 
agent  for  P,  entered  into  an  arrangement  with  A  to  buy  the  land, 
ostensibly  for  M,  but  in  reality  for  the  Joint  beneflt  of  M  and  A. 
P,  the  owner,  after  the  deal  had  been  consummated,  learned  of  the 
arrangement  and  now  sues  to  set  the  sale  aside.  Can  he  recover? 
(Glover  v.  Layton,  145  111.  92.) 

28.  D  was  manager  of  a  theatre  for  H.  H  had  a  ten  year  lease. 
Before  the  lease  expired  D  secretly  applied  to  the  owner  of  the 
building  for  a  renewal  of  the  lease  at  an  increased  rental.  II  claims 
the  beneflt  of  this  lease.  Is  he  entitled  to  it?  (Davis  v.  Hamlin,  108 
111.  39;  Essex  Trust  Co.  v.  Enright,  214  Mass.  507,  47  L.  R.  A. 
N.  S.  567.) 

29.  P  instructed  A  to  purchase  certain  bonds  for  which  he  was 
remitting  money.  Before  the  money  reached  A,  the  bonds  had  a 
great  and  unexpected  rise  in  price.  A  delayed  purchasing  until  he 
could  receive  further  instructions  from  P  and  the  bonds  went  still 
higher.  Is  A  liable  for  not  buying  the  bonds  upon  his  receipt  of  the 
money?  State  the  principles  Involved.  (Bernard  v.  Maury,  20  Gra^t. 
(Va.)  434.) 

30.  What  is  the  meaning  of  the  phrase  "Delegata  potestae  non 
potest  delegarV't 

31.  What  acts  can  an  agent  properly  delegate? 

32.  Wliat  is  the  rule  as  to  liability  of  banks  for  collections 
made  through  correspondent  banks? 

33.  If  an  agent  makes  a  contract  for  his  principal  and  the  third 
person  defaults  is  the  agent  liable  for  such  default? 

34.  What  is  a  del  credere  agency?  Does  the  statute  of  frauds 
apply  thereto?  Must  the  principal  first  have  recourse  against  the 
customer  before  he  can  hold  a  del  credere  agent? 

CHAPTER  SEVEN. 

35.  T  deals  with  A,  who  acts  nominally  as  P's  agent.  As  a 
general  statement  what  must  T  show  to  hold  P  on  the  contract  made 
by  A  In  P's  name? 


Questions  and  Problems.  119 

36.  What  is  express  authority?  implied  authority?  apparent 
authority? 

37.  A  general  manager  of  a  piano  company  publishes  an  offer  of 
a  reward  to  persons  solving  a  certain  rebus.  The  company  defends 
in  a  suit  by  M  for  the  reward  that  its  board  of  directors  had  voted 
that  no  such  rewards  be  offered  and  the  manager  had  been  so  notified. 
Is  the_  company  liable? 

38.  An  agent  was  employed  to  establish  an  agency  for  a  sale  of 
trucks  in  a  town,  and  traded  a  sample  truck  belonging  to  the  em- 
ployer for  an  automobile  with  the  persons  whom  he  was  establishing 
as  agents  for  the  sale  of  trucks  for  his  employer.  The  employer  at- 
tempts to  repudiate  the  transaction.  Is  he  bound  by  his  agent's 
act?     (Davidson  v.  Parks,  108  Atl.   (N.  H.)  288.) 

39.  An  agent  had  authority  to  collect  interest  on  his  principal's 
debts.  With  no  other  express  authority  than  this  he  collected  a  debt 
itself  and  absconded.  The  debtor  claims  that  the  agent  had  authority 
to  collect  the  debt  and  that  the  principal  is  bound  thereby.  How 
should  the  court  decide?  (Thornhill  v.  Massucci,  216  S.  W.  (Mo. 
Ap.)  819.) 

40.  P  conferred  upon  A  power  to  manage  P's  real  estate,  and 
execute  deeds  and  mortgages  and  the  necessary  promissory  notes,  and 
pay  taxes,  "and  generally  to  act  in  the  premises  as  fully  as  I  might 
act  personally."  A  borrowed  money  from  M  in  P's  name,  for  the 
purpose  of  paying  taxes.  He  used  the  money  for  himself.  M  sues 
P  on  the  notes  given  by  A  in  P's  name.  Can  M  recover?  (William 
V.  Dugan,  217  Mass,  256,  L.  R.  A.  1916  C.  110.) 

41.  A  was  an  agent  to  solicit  advertising  and  to  collect  accounts 
in  checks  or  cash  due  for  advertising ;  he  collected  certain  checks  pay- 
able to  his  principal,  and  had  them  cashed  at  the  T  bank.  A  ab- 
sconding with  the  proceeds,  P  sues  the  T  Bank.  Can  he  recover? 
(Dispatch  Printing  Co.  v.  Nat.  Bank  of  Com.,  109  Minn.  440.) 

42.  An  agent  had  a  writing  from  his  principal  reciting  that  the 
agent  was  "hereby  authorized  to  transact  any  and  all  business  for  the 
company."  Having  a  check  in  his  possession  payable  to  the  company, 
he  indorsed  the  company's  name  to  the  check  and  procured  the  money 
from  the  defendant  bank.  Assuming  that  there  are  no  circumstances 
showing  any  authority  of  the  agent  except  the  above  writing,  is  the 
bank  protected  in  paying  this  money  to  the  agent?  (Coleman  v. 
Seattle  Nat.  Bk.,  186  Pac.   (Wash.)   275.) 

43.  P  had  a  horse  to  sell  and  gave  it  into  A's  possession  with 
authority  to  go  out  and  sell  to  any  purchaser  he  might  find,  but  for 
not  less  than  $3,000.  A  sold  to  T  for  $1,000.  P  repudiates  the 
transaction.     Is  the  bargain  good? 


120  Questions  and  Problems. 

44.  A  being  employed  to  collect  notes  for  P,  took  hay  in  pay- 
ment, believing  that  the  best  way  to  get  the  most  for  his  principal. 
Can  C  repudiate  the  deal?     (Rush  v.  Rush,  ITO  111.  623.) 

45.  An  agent  is  authorized  to  sell  lumber.  He  makes  a  war- 
ranty as  to  the  quality  of  the  lumber.  On  a  sale  for  the  price,  de- 
fense is  made  that  the  warranty  was  broken.  The  principal  had  no 
actual  knowledge  of  the  warranty.  Is  he  bound  thereon?  (Eichler 
V.  Kahnweiler,  178  N.  Y.  S.  257.) 

46.  A  had  authority  to  receive  orders  for  goods  sold  by  P. 
JI  of  the  firm  M  and  N,  customers  of  P,  gave  A  notice  of  his  with- 
drawal from  that  firm.  N  thereafter  bought  goods  from  P  in  the  old 
firm  name.  A  did  not  inform  P  of  the  notice  given  him.  P  seeks  to 
hold  M  and  N.  Can  he  hold  M?  (Cox  v.  Pearce,  112  N.  Y.  637, 
3  L.  R.  A.  563.) 

47.  In  a  personal  injury  case,  caused  by  breaking  of  chains, 
plaintiff  offers  to  testify  as  evidence  against  the  defendant  that  de- 
fendant's foreman  an  hour  after  the  accident  stated  to  plaintiff  "that 
he  (the  foreman)  had  been  after  the  company  a  year  to  furnish  him 
with  new  chains  and  they  would  not  do  it."  Defendant  objects.  Is 
the  evidence  competent?  (Usry  v.  Augusta  Southern  Rwy.  Co.,  102 
S.  E.  (Ga.)  184.)  Would  the  foreman  be  a  competent  witness  on  the 
stand  against  defendant? 

CHAPTER  EIGHT. 

48.  If  an  agent  acts  ostensibly  as  principal,  but  in  reality  rep- 
resents a  principal  who  later  becomes  known,  can  the  third  person 
hold  the  undisclosed  principal? 

49.  In  such  a  case,  must  the  third  person  hold  the  undisclosed 
principal  rather  than  the  agent? 

50.  A  makes  a  contract  with  T.  Ostensibly  he  acts  in  his  own 
behalf  but  really  he  is  P's  agent.  P  remits  proceeds  to  A  to  pay  T. 
Later  T  discovers  P's  existence  and  identity.  A  does  not  pay  T. 
T  sues  P.     Can  T  recover  in  this  suit? 

51.  Can  an  undisclosed  principal  be  held  on  negotiable  paper 
signed  by  the  agent  in  his  own  name? 

52.  State  the  right  of  the  undisclosed  principal  to  hold  the 
third  person. 

CHAPTER  NINE. 

53.  Defendant's  teamster  finished  his  day's  work  and  having 
driven  to  the  stable  to  put  the  horses  away,  changed  his  mind  and 
drove  off  again  on  an  errand  of  his  own,  and  in  doing  so  by  his 
negligent  driving  injured  plaintiff.  Is  defendant  liable  for  this  tort 
of  the  teamster?     (Mitchell  v.  Crasweller,  13  C.  B.  (Eng.)  287.) 


Questions  and  Problems.  121 


64.     Defendant's  teamster  coming  from  town  with  a  load  of  fer- 
tilizer  for  defendant's   farm   went  a   round-about  way   to  stop   at  a; 
shoe  shop  on  an  errand  of  his  own.     While  doing  so,  plaintiff  was  in- 
jured  by  the  teamster's  negligent  driving.     Is  the  defendant  liable? 
(Kitchie  v.  Waller,  63  Conn.  155,  27  L.  R.  A.  161.) 

55.  The  M.  R.  Co.  employed  A,  as  a  ticket  agent.  H  purchased 
a  ticket  and  paid  therefor  a  coin,  which  the  agent  immediately  after 
taking,  pronounced  as  counterfeit  and  detained  her  for  arrest.  Was 
the  company  liable?     (Pamori  v.  M.  R.  Co.,  133  N.  Y.  261.) 

56.  A  left  home  with  the  intentions  of  going  to  R's  store  to  trade. 
Before  she  entered  the  store  and  while  she  was  standing  looking  into 
a  show  window,  a  detective  employed  by  the  company  caused  her 
arrest,  accusing  her  of  shoplifting.  Is  R  liable?  (Vrchotka  v.  Roths- 
child, 100  111.  Ap.  268.) 

57.  A  is  agent  of  the  P.  Insurance  Co.  with  authority  to  suspend, 
check  up,  and  settle  with,  the  local  agents  of  the  Company.  B,  one 
of  such  local  agents,  was  deemed  to  be  in  default.  A  attempted  in 
various  ways  to  settle  up  and  finally  had  him  indicted  of  embezzle- 
ment, a  crime  for  whicla  he  was  found  not  guilty.  Assuming  that  A 
acted  without  reasonable  grounds,  is  P  liable?  (Russell  v.  Palatine 
Ins.  Co.   (Miss.).) 

58.  A  salesman  of  P.  Co.  in  attempting  to  make  a  sale,  slanders 
a  rival  concern.     Is  P.  Co.  liable  to  that  concern  for  the  slander? 

CHAPTER  TEN. 

59.  A  as  Vice  President  of  a  bank  guarantees  in  the  name  of  the 
bank  an  account  between  B  and  C.  Can  the  bank  be  held?  Can  A  be 
held?     Why? 

60.  A  is  acting  as  agent  for  an  unknown  principal.  T  knows 
that  A  is  a  mere  agent  but  does  not  know  A's  principal.  A  as  such 
undisclosed  agent  makes  a  contract  with  T.  T  asks  to  hold  A  per- 
sonally. A  defends  that  T  knew  he  was  a  mere  agent.  Is  the  defense 
good?     (Siler  v.  Perkins,  126  Tenn.  380,  47  L.  R.  A.  N.  S.  2432.) 

61.  Following  note  given  :  "Chicago.  July  6,  1886.  On  Aug.  1, 
1886,  we  promise  to  pay  to  order  of  S.  &  C.  Co.  One  Thousand  Dollars. 

(sd)  M.  M.,  Pres.,  W.  P.  &  Co. 

A.  F.  D.,  Sec'y." 
M.  M.  and  A.  F.  D.  are  personally  sued.     They  defend  that  they 
are  not  personally  liable.     What  is  your  opinion?     (McNeil  v.  S.  &  C. 
Co.,  144  111.  239.     Note  21,  L.  R.  A.  N.  S.  1045.) 

62.  What  is  the  rule  as  to  liability  of  agent  for  his  own  torts 
committed  in  performing  the  agency? 


122  Questions  and  Problems. 

63.  A  was  agent  oT  an  apartment  building  with  full  authority  to 
keep  it  in  repair  and  hire  the  employee^.  B,  a  tenant  of  the  building, 
was  injured  through  A's  negligence  in  allowing  the  door  of  the  ele- 
vator shaft  to  be  out  of  repair,  so  that  it  would  stand  open  when 
the  elevator  was  not  at  the  floor.  B  sues  A.  Defense  that  A  is  a 
mere  agent  of  a  disclosed  principal.  Is  defense  good?  (Tippecanoe 
Loan  &  T.  Co.  v.  Jester,  180  Ind.  357.) 

CHAPTER  ELEVEN. 

64.  Deflne  a  factor. 

65.  When  should  a  factor  insure  goods  received  under  his  agency? 

66.  Has  a  factor  any  implied  or  apparent  power  to  barter  goods? 

67.  May  he  sell  on  credit?  May  he  extend  credit  originally 
given  ? 

68.  Can  a  factor  who  has  possession  of  goods  give  a  good  title 
by  a  sale  which  is  contrary  to  instructions  where  such  sale  is  to  a 
person  who  does  not  know  that  the  factor  is  not  owner? 

69.  What  is  the  factor's  lien? 

70.  Deflne  a  broker?    What  various  kinds?     Deflne  each  kind. 

71.  What,  generally  speaking,  is  the  authority  of  the  broker? 

72.  Deflne  auctioneer. 

73.  When  does  sale  by  auction  take  place? 

74.  What  is  by-bidding? 

CHAPTER  TWELVE. 

75.  In  what  various  ways  may  an  agency  terminate? 

76.  Distinguish  between  right  to  terminate  and  power  to  termi- 
nate. 

77.  A  borrowed  from  B  $1,000,  and  as  part  of  the  same  transac- 
tion appointed  B  his  agent  to  collect  debts  due  A,  as  security  for  the 
loan.  A  dies  before  the  loan  is  paid.  Is  B's  authority  to  collect 
thereby  revoked? 

78.  A  has  an  agency  for  one  year  to  sell  automobiles  for  M. 
It  is  an  extremely  valuable  agency,  and  its  loss  will  cause  A  great 
damage.  M  attempts  to  revoke.  A  insists  M  has  no  power  to  do  so. 
Can  M  revoke? 

CHAPTER  THIRTEEN. 

79.  What  effect  has  death  of  principal  on  agent  or  agency? 
Insanity  ? 

80.  How  does  bankruptcy  affect  agency? 

81.  State  effect  of  war  upon  agency. 


INDEX. 

(References  are  to  sections) 

A. 

Admissions  of  agent,  57. 
Agency, 

defined,  1. 
Apparent  Authority, 

(including    "Implied    Authority"). 

in  general  and  special  agencies,  47. 

in  special  appointments,  48. 

to  borrow  money,  49. 

to  sign  and  indorse  commercial  paper,  SO. 

to  sell  personal  property,  51,  52. 

to  receive  payment,  53. 

to  extend  credit,  54. 

to  buy   on   credit,   55. 

to  warrant,  56. 

to  make  admissions,  57. 

to  receive  notice,  58. 

of  brokers,  87. 

of  factors,  81,  82. 
Appointment  of  agents,  see  also  "Authority," 

for  illegal  purposes,  10. 

form  of,  14. 
Auctioneer, 

defined,  87. 

authority  of,  88. 

sales  by,  89,  90. 
Authority,  see  also  "Ratification," 

delegation  of,  11,  12. 

formalities  of,  14. 

elements  in  conferring,  15. 

of  wife  to  bind  husband,  17. 

general  rule,  44. 

statements  of,  by  agent,  45. 

express  and  implied,  46. 

123 


124  Index. 

apparent  (and  implied). 

see  "Apparent  Authority." 
termination  of,  91-103. 


B. 


Bankruptcy, 

effect  of,  102. 
Banks, 

collections  by,  41. 
Brokers, 

defined,  85. 

kinds  of,  86. 

authority  of,  87. 


Capacity  to  be  agent,  9. 

compensation  of  agent. 

right  to,  28. 

when  earned,  29-32. 
Capacity  to  be  principal, 

general  rule,  6. 

of  minors,  7. 

of  corporations,  8. 
Care  required  of  agents,  38. 
Corporations, 

power  of,  to  be  principals,  8. 

D. 

Death, 

effect  of,  on  agency,  99,  100. 
Del  credere  agencies, 

defined,  43. 
Delegation  of  duty,  39-41. 
Duty  of  agent, 

to  use  good  faith,  33. 

not  to  represent  both  parties,  34. 

not  to  buy  or  sell  to  self,  35. 

not  to  take  secret  benefits,  36. 

to  obey  instructions,  37. 

to  use  care  and  skill,  38. 

to  perform  personally,  39-41. 


Index.  125 

P. 


Factor, 

defined,  79. 

duties  of,  80. 

authority  of,  81,  82. 

lien  of,  8i. 
Form  of  appointment,  14. 
Frauds,  statute  of, 

agent's  authority  under,  14. 

L 

Illegal  agencies,  10. 
Independent  contractor, 

defined,  1. 
Infants, 

see  "Minors." 
Instructions, 

duty  of  agent  to  observe,  37. 
Irrevocable  agencies,  94. 

K. 

Kinds  of  agencies, 
defined,  4. 


Liability  of  agent, 

to  principal,  42, 

on  del  credere  agencies,  43. 

to  third  persons,  70. 

upon  virarranty,  71. 

when  principal  undisclosed,  73. 

upon  form  of  contract,  74-76. 

where  no  responsible  principal,  77. 

for  torts,  78. 
Liability  of  Principal, 

see  "Authority  of  Agent";   "Torts  of  Agent";   "Compen- 


sation of  Agent.' 


Master  and  Servant, 
relationship  of,  1. 


M. 


126  Index. 

Minors, 

capacity  of,  to  be  principals,  7. 
capacity  of,  to  be  agents,  9. 
power  of,  to  bind  parent,  18. 


Notice, 

to  agent,  58. 

of  revocation,  97. 


N. 


P. 


Power,  see  "Capacity";  "Authority";  "Delegation  of  Authority." 
Professional  agents,  see  "Factor";  "Broker";  "Auctioneer." 


R. 


Ratification, 

meaning  of,  20. 

essentials  to,  21. 

what  constitutes,  22-27. 
Respondeat  superior, 

defined,  2. 
Revocation  of  agency, 

by  act  of  principal,  93. 

when  no  power  of,  94. 

when  right  to,  95. 


S. 


Salary  of  agent,  see  "Compensation  of  Agent." 

Skill  required  of  agent,  38.  , 

I 

T.  i 

Termination  of  authority,  ■ 

by  act  of  parties,  91-98. 
by  operation  of  law,  99-103. 

U.  ] 

Undisclosed  agency,  i 

general  rule,  59,  65.  j 

exceptions,  60-64.  l 

i 

1 


Index.  127 

W. 


War,  1 

effect  of,  on  agency,  103.  i 

Warranty,  _  ^ 

by  agent,  of  his  own  authority,  71.  j 

power  to  bind  principal  upon,  56. 
Wife's  authority,  17. 


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